Wells Fargo's third-quarter results showed a decrease compared to the previous year, yet earnings exceeded market expectations, as trading gains and investment banking fees contributed to a rise in noninterest income. The lender's net income for the September quarter fell to $1.42 per share, down from $1.48 a share the year prior, but interestingly, it surpassed the Capital IQ-polled consensus estimate of $1.29.
Total revenue reached $20.37 billion, representing a decrease from $20.86 billion and falling short of Wall Street’s outlook of $20.46 billion. In a notable response, the stock gained 5.5% in Friday's trading session, reflecting investor optimism. Charlie Scharf, Chief Executive, commented on the changing earnings profile, stating, 'Our earnings profile is very different than it was five years ago as we have been making strategic investments in many of our businesses and de-emphasizing or selling others.
Our revenue sources are more diverse and fee-based revenue grew 16% during the first nine months of the year, largely offsetting net interest income headwinds.' The lender experienced an 11% decline in net interest income, which fell to $11.69 billion due to increased funding costs and reduced loan balances, among other influencing factors.
In contrast, noninterest income increased by 12% to $8.68 billion, driven by trading gains in the markets sector and higher fees related to investment banking and deposits. However, corporate and investment banking revenue experienced a slight downturn, edging down to $4.91 billion from the previous year’s $4.92 billion due to weaker banking and commercial real estate sales.
Within this segment, investment banking revenue also decreased by 3% year-over-year. Commercial banking revenue dipped 2% to $3.33 billion, while consumer banking and lending revenue saw a 5% decline to $9.12 billion. That said, wealth and investment management revenue rose by 5% to reach $3.88 billion.
The provision for credit losses dropped to $1.07 billion from nearly $1.2 billion last year, revealing a 'modest' decrease in the allowance for credit losses, as reported by Wells Fargo. Scharf emphasized the bank's commitment to maintaining strong credit discipline and achieving significant operating efficiencies while heavily investing to create a risk and control environment suitable for a financial institution of its scale and complexity.
Looking ahead to the full year 2024, the bank now anticipates a 9% annual decline in net interest income, with the fourth quarter figure expected to remain 'roughly in line' with the previous period, as indicated in their presentation. The lender had previously estimated a decline in net interest income of between 8% and 9%.
Furthermore, Wells Fargo continues to project a noninterest expense of approximately $54 billion for the current year..