Wells Fargo’s profit falls on lower interest income

WELLS Fargo’s profit fell in the third quarter as the bank’s interest income was squeezed by subdued loan demand and higher payments to depositors.

The fourth-largest US lender reported net income of US$5.11 billion for the three months ended Sep 30, compared with US$5.78 billion a year earlier, it said on Friday (Oct 11).

Wells Fargo’s net interest income – or the difference between what it earns on loans and pays out for deposits – dropped 11 per cent to US$11.69 billion in the third quarter.

Analysts on average had predicted US$11.87 billion, according to estimates compiled by LSEG.

Banks’ interest income, which had benefited in recent years as the Federal Reserve raised interest rates, is expected to keep declining for the rest of 2024.

The US central bank last month lowered its benchmark policy rate for the first time since 2020, cutting it by 50 basis points. Policymakers have projected another half of a percentage point reduction by the end of this year.

The rate cut was followed by top banks lowering prime lending rates, which will likely shrink their interest income. Banks have also tightened lending standards this year.

Several factors could also weigh on bank profits in the coming months. Loan demand has been subdued as higher interest rates deterred commercial and consumer borrowers. At the same time, banks have had to compete for deposits by paying clients more.

Wells Fargo is also reportedly doubling down on efforts to lift a US$1.95 trillion asset cap imposed by the Federal Reserve that prevents the bank from growing until regulators deem it has fixed problems dating back to the 2016 fake accounts scandal.

In September, a US banking regulator found its safeguards against money laundering and other illegal transactions were too lax and restricted its ability to expand in risky businesses.

The asset cap curtails Wells Fargo’s ability to take in more deposits and expand its trading business, two potential growth areas for the bank, CEO Charlie Scharf said earlier this year.

It still has eight regulatory punishments, called consent orders, that it is working to address.

On a per share basis, quarterly profit was US$1.42 versus US$1.48 a year earlier. REUTERS