Wells Fargo shares jump after Q2 results exceed estimates

Wells Fargo & Co. earned more net interest income than analysts expected in the second quarter and lifted its guidance for the full year as big U.S. banks continue to benefit from the Federal Reserve’s rate hikes. 

The San Francisco-based firm reported $13.2 billion in net interest income — revenue collected from loan payments minus what depositors are paid — for the three months through June, up 29% from a year ago, according to a statement Friday. Executives now see Wells Fargo’s NII haul rising roughly 14% for the full year, more than the 10% jump they had earlier projected. 

“Our strong net interest income continued to benefit from higher interest rates, and we remained focused on controlling expenses,” Chief Executive Charlie Scharf said in the statement. “The US economy continues to perform better than many had expected.”

Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. are kicking off second-quarter earnings Friday, offering the first look at a period that included tumult among regional lenders capped by the failure of First Republic Bank. Investors are eager for details on how consumers and businesses are faring amid the Federal Reserve’s efforts to cool inflation through interest-rate hikes.

Shares of Wells Fargo climbed 2.5% to $44.79 at 9:36 a.m. in New York, and are up 8.7% this year.

Investors have been increasingly worried about banks’ ability to hang onto customer deposits as the Fed’s moves give consumers higher-yielding options for storing their cash. Wells Fargo was no exception: non-interest-bearing deposits slumped 22% to $402 billion in the quarter while average deposit costs soared. 

The firm plugged that hole in part with $25 billion in borrowings from the Federal Home Loan Bank system. 

The bank reported a $1.7 billion provision for loan losses, more than analysts expected, which included a reserve build tied to office-building loans. Investors have been closely watching commercial real estate in recent months, and Scharf warned in May that “there will be losses” in the office sector. 

Expenses, a key focus of Scharf’s turnaround plan, totaled $13 billion in the quarter, above expectations. The firm lifted its full-year guidance for non-interest expenses excluding operating losses to $51 billion, citing higher costs tied to severance payments as the firm seeks to reduce headcount amid lower attrition. 

Wells Fargo is still under a Fed-imposed asset cap limiting its size to the bank’s end-of-2017 level. Period-end assets totaled $1.9 trillion, lower than a year earlier.

Meanwhile, JPMorgan Chase & Co.’s revenue soared to a record in the second quarter, boosted by the Federal Reserve’s interest-rate hikes and its acquisition of First Republic Bank.

The firm’s $41.3 billion in revenue beat analysts’ expectations, fueled by $21.8 billion in net interest income as well as a $2.7 billion gain on its First Republic purchase, according to a statement Friday. 

JPMorgan agreed in May to acquire First Republic, beating out rivals in a government-led auction. First Republic was the fourth regional lender to collapse in a matter of weeks, and its failure was the second-largest in US history. The deal made the biggest U.S. bank even bigger. 

The New York-based company raised its full-year guidance for NII, saying it now expects $87 billion, excluding its trading business, up from the $84 billion it predicted at its investor day in May. But net interest income will probably be “substantially below this quarter’s run rate at some point in the future, as competition for deposits plays out,” chief financial officer Jeremy Barnum said on a conference call.

Shares of JPMorgan rose 1.6% to $151.23 at 9:31 a.m. in New York trading, pushing this year’s gain to 12%.