Wells Fargo posts strong returns but warns of lower interest income
Wells Fargo’s fourth-quarter profit jumped as the lender benefited from cost cuts, but it warned that 2024 net interest income could be 7%-9% lower than a year earlier.
As the Federal Reserve has raised interest rates, banks benefited by charging borrowers more on interest. With market participants forecasting rate cuts in 2024, banks’ interest income could start to erode.
“Our business performance remains sensitive to interest rates and the health of the US economy, but we are confident that the actions we are taking will drive stronger returns over the cycle,” CEO Charlie Scharf said in a statement.
Conversely, lower rates could tempt more consumers to take out loans, boosting another key source of income for banks.
Revenue in the fourth quarter rose 2% to $20.5bn.
Net income rose to $3.45bn, or 86c per share, for the three months ended December 31, the lender said on Friday. That compares with $3.16bn, or 75c per share, a year earlier.
Wells Fargo is among a group of banking giants that are required to refill a government insurance fund that was drained of $16bn after three regional lenders collapsed. It paid $1.9bn in special assessment fees to the regulator.
Meanwhile, the bank raised its provisions to prepare for souring loans. Office property loans have been a cause for concern as the rise in remote and hybrid work has spurred more vacancies, making it harder for building owners to pay back their loans.
Wells Fargo anticipates losses in commercial real estate and has shored up capital to absorb them, it had said in recent quarters.
In December, Scharf told investors that the bank expects to book higher-than-anticipated severance expenses between $750m and a little less than $1bn in the fourth quarter. The bank incurred severance expenses of $969m, or 20c a share.
Wells Fargo is still operating under an asset cap, which prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal. The bank still has nine open consent orders from regulators mandating additional oversight of its practices.
OFFICE PROPERTY LOANS HAVE BEEN A CAUSE FOR CONCERN AS THE RISE IN REMOTE AND HYBRID WORK HAS SPURRED MORE VACANCIES