Wells Fargo beats profit estimates, NII and revenue fall short

​Wells Fargo (WFC-N) beat Wall Street estimates for third-quarter profit on Tuesday, but missed net interest ​income and revenue expectations, sending its shares down ‌nearly 1 per cent in volatile premarket trading.

The fourth-largest U.S. lender reported a profit of US$1.87 per share, beating analysts’ average expectations of US$1.85, according to data compiled by LSEG.

Its net interest income — the difference between what a lender ⁠earns on ​loans and pays out on deposits — rose 5 per cent to US$12.52-billion but fell short of expectations of US$12.63-billion.

The bank said NII was impacted by lower interest rates on floating-rate assets, higher deposit costs and a decline in noninterest-bearing deposits.

Following the removal of the US$1.95 trillion asset ​cap last year, the bank has been expanding its balance ‌sheet to regain ground in businesses where it had ceded market share to larger rivals.

The rapid expansion of its loan book, however, has also increased the amount of money it has to set aside for potential bad loans, even as the bank has said it was seeing no deterioration in delinquency trends.

Provisions for credit ‌losses increased ​to US$1.03-billion, from US$681 million a year ‌earlier.

Revenue came in at US$21.87-billion, also falling short of estimates of US$22.31-billion.

In a mixed start ​to big bank earnings, JPMorgan Chase fell short of quarterly ⁠profit estimates for the first time in nearly three years while Goldman Sachs ⁠posted a higher third-quarter profit.

The US economy has remained on a firm footing due to heavy AI-led business ​investments, resilient consumer spending and relative stability in the labor market.

Wells has leaned on credit cards and auto loans to grow its consumer loan book, tapping into healthy spending trends.

“While economic uncertainty exists and consumer sentiment remains mixed, our data shows that our consumer and business customers are doing well,” CEO Charlie Scharf said ⁠in a statement.

Despite expectations for strong earnings, banking stocks have sold off recently as investors turn cautious on the prospect of continued interest rate hikes by the Federal Reserve dampening economic activity. The KBW Bank Index has shed more than 12 per cent from its August highs.

“We’re not seeing any change in behavior across either borrowers or depositors that would lead us to believe something’s changing in ⁠the underlying trends that we’ve seen now,” CFO Mike Santomassimo ​told reporters on a post-earnings call.

The bank has invested heavily in its investment banking and ⁠markets businesses, hiring senior bankers and spending more on client financing, trading and other capital-markets activities.

That strategy has helped Wells move up ‌the investment banking league tables and secure advisory roles on some of the biggest deals of the year, ​including NextEra Energy’s US$67-billion deal for rival Dominion Energy. This quarter, it advised Thoma Bravo on its US$4-billion-plus deal to take Accelerant private.

Wells raked in investment banking revenue of US$611 million in the quarter, up 10 per cent from a year earlier. However, it was down 3 per cent sequentially ​as higher borrowing costs have weighed on a bumper year for mergers and IPOs.