For Wells Fargo, the pain of falling rates has already become a reality.
Net interest income, the difference between what the bank charges borrowers and what it pays out to customers with deposits, fell to the lowest since 2016. That brought the net interest margin to a lower than expected 2.82%.
Falling interest rates and a Federal Reserve cut that’s probably looming have created concern across Wall Street about how much and how soon banks will suffer. In April, Wells Fargo lowered its NII guidance for the year to a decline of 2% to 5%, pushing its stock down at the time.
A bright spot in the quarter: The bank continued to win business from consumers, with primary checking accounts up 1.3% from a year earlier.
Tuesday marks the second consecutive period Wells Fargo has reported results under an interim chief executive officer, Allen Parker, the bank’s former general counsel. He took over in March after Tim Sloan abruptly stepped down, succumbing to political pressure and regulatory dissatisfaction. Wells Fargo’s board is searching outside the bank for its next leader.
Wells Fargo shares fell 0.4% to $46.50 at 8:16 a.m. in New York. They’ve risen 1.4% this year through Monday, compared with the 15% increase in the 24-company KBW Bank Index.
More about Wells Fargo’s second-quarter results:
- The bank’s efficiency ratio, a measure of profitability, improved to 62.3% from 64.4% in the first quarter. Sloan had been targeting 55% to 59% in the long term, excluding litigation costs.
- Noninterest expense fell 4% to $13.4 billion. After Sloan stepped down, Chief Financial Officer John Shrewsberry reiterated Wells Fargo’s commitment to a noninterest expense target of $52 billion to $53 billion for 2019, but deferred to a future CEO on 2020 guidance.
- Revenue was little changed at $21.6 billion, compared with analyst expectations of a 3% decrease.
- Net income climbed 20% to $6.21 billion, or $1.30 per share. Analysts expected a 1.5% increase.
