Wells Fargo earnings fall short of estimates as low rates hit interest income

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Key Points

  • Wells Fargo’s net interest income fell by 19% to $9.368 billion from the year-earlier period.
  • “Historically low interest rates reduced our net interest income and our expenses continued to remain elevated,” CEO Charles Scharf said.

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Wells Fargo on Wednesday reported disappointing earnings for the third quarter as low rates put pressure on the bank’s net interest income.

Here’s how the banking giant’s numbers stacked up against Wall Street expectations:

  • Earnings: 42 cents per share vs. a Refintiv estimate of 45 cents per share
  • Revenue: $18.86 billion vs. $17.978 billion forecast

Shares of Wells Fargo were down 1.9% in the premarket.

“Our third quarter results reflect the impact of aggressive monetary and fiscal stimulus on the US economy,” Wells Fargo CEO Charles Scharf said in a statement. “Strong mortgage banking fees, higher equity markets, and declining sequential charge-offs positively impacted our results, while historically low interest rates reduced our net interest income and our expenses continued to remain elevated.”

The bank’s net interest income fell by 19% to $9.368 billion from the year-earlier period. That steep decline comes as the Federal Reserve has kept interest rates at historically low levels in response to the coronavirus pandemic.

“The trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain, but we remain strong with our capital and liquidity levels well above regulatory minimums,” Scharf added.

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Wells’ report offered some bright spots for investors. The bank set aside $769 million for credit losses in the third quarter. That’s well below a FactSet estimate of $1.76 billion and is down sharply from the $9.5 billion set aside in the second quarter.

The bank’s noninterest income also topped analyst expectations, coming in at $9.5 billion, as deposit, card and investment fees all grew on a quarter-over-quarter basis. Mortgage-banking income rose to $1.6 billion from $317 million in the second quarter.

Wells Fargo shares have been under pressure this year as the company grapples with the economic slowdown sparked by the pandemic. Entering Wednesday’s session, Wells is down 54% year to date.

The stock is also lagging shares of rival banks in 2020. JPMorgan Chase is down 27.7% in 2020 and Bank of America has fallen 29.2% in that time period.

Wells is also still reeling from its fake-account scandal in 2016.

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02:23 How Wells Fargo’s Q3 earnings stack up against Bank of America’s, Goldman’s results Squawk Box

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