The Zhitong Finance App learned that Wells Fargo Bank (WFC.US) announced mixed results for the third quarter. Q3 revenue increased 2% year over year to US$21.87 billion, but fell short of market expectations of approximately US$22.32 billion. GAAP earnings per share were $1.87, up 13% year over year, slightly above market expectations.
Q3 net interest income (the difference between income received by lenders from loans and interest paid on deposits) increased by 5% during the quarter to reach US$12.52 billion; driven by rising loan and investment securities balances, declining interest rate repricing, and market business expansion, this was partly offset by lower returns on floating interest rate assets and rising costs of interest-bearing commercial deposits. Non-interest income was US$9.353 billion, down 1% year over year, mainly due to lower transaction income, lower rental revenue after the sale of railway vehicle leasing business at the beginning of the year, and declining venture capital income and mortgage bank revenue.
In terms of credit costs, the credit loss provision for the quarter was US$1,029 million, far higher than the US$681 million in the same period last year. It mainly reflects an increase in reserves due to rising industrial and commercial loan balances, while commercial real estate reserves declined somewhat; net write-off of US$983 million, with an annualized net write-off rate of 0.38%, which is basically the same as the same period last year.
Since the Federal Reserve lifted a multi-year regulatory cap on the bank's assets, the bank has been able to deploy more balance sheets, giving it more room to compete for loans. Wells Fargo relies on credit cards and car loans to expand its consumer loan business, in line with healthy spending trends.
In terms of capital and size, average loans and average deposits both increased 11% year on year (reaching 1,033.4 billion and 1,482.9 billion US dollars, respectively); ROTCE was 16.3% in the third quarter and 16.2% in the first three quarters (14.7% in the same period last year); ROE 13.8%; Tier 1 capital adequacy ratio (CET1) fell to 10.0% (11.0% in the same period last year), mainly due to share repurchases and balance sheet expansion. During the quarter, 28.6 million shares of common stock were repurchased, or approximately US$2.5 billion.
The US economy has maintained steady growth due to significant commercial investment in artificial intelligence, strong consumer spending, and a relatively stable labor market. “Despite the uncertain economic situation and mixed consumer sentiment, our data shows that our consumer and business customers are doing well,” CEO Charlie Schaff said in a statement. The US banking sector has also benefited from reinvesting mature assets into higher-yielding investment instruments, thereby improving overall profit margins.
Chief Financial Officer Mike Santomasimo last month was optimistic about the bank's loan growth forecast for this year, saying credit and spending trends remain healthy despite concerns that rising costs may strain household budgets.
Although the market expects strong earnings in bank stocks, bank stocks have recently been sold off as investors are wary of the possibility that continued interest rate hikes by the Federal Reserve may curb economic activity. The KBW Bank Index has fallen more than 12% from its August high.
Although analysts expect that rising bond yields will support Wells Fargo's net interest income in the short term, rising financing costs may dampen economic growth.
After the results were announced, the bank's stock price fell about 1% in pre-market trading. By the close of trading on Monday, the stock had accumulated a decline of more than 10% since this year.