Wells Fargo nearing ‘trough’ in deposit costs after Fed rate cut

UPDATE:

This
article
includes
new
comments
from
Wells
Fargo’s
earnings
call
and
analyst
commentary
on
the
bank’s
results.

The
deposit
competition
that’s
weighed
on

Wells
Fargo’s
profits
appears
to
be
easing,
executives
at
the
megabank
said
Friday,
an
optimistic
assessment
that
bodes
well
for
others
in
the
industry.

The
pressures
are
still
evident
in
the
bank’s
earnings,
as
net
income
slid
to
$5.1
billion
in
the
three
months
ended
Sept.
30,
from
$5.8
billion
a
year
ago.
But
Chief
Financial
Officer
Michael
Santomassimo
pointed
to “stabilization”
following
the
Federal
Reserve’s
interest-rate
cut,
saying

Wells
Fargo
has
been
able
to
trim
what
it
pays
depositors
without
much
pushback.

“We
believe
we
are
close
to
the
trough,”
Santomassimo
said
Friday.

Deposit
costs
continued
rising
for

Wells
Fargo
but
at
a


slower
pace
than
before,
as
fewer
customers
switched
into
higher-paying
deposit
options.
The
bank
was
able
to


reduce
the
top
interest
rates
it
pays
depositors
as
well,
including
by
lowering
the
promotional
offerings
on
consumers’
certificates
of
deposit.

Wells
Fargo’s
net
interest
income
will
still
fall
sharply
this
year,
with
executives
projecting
a
9%
decline.
Net
interest
income
fell
to
$11.7
billion
during
the
third
quarter,
from
$13.1
billion
in
the
year-ago
quarter.

But
investors
had
already
been
anticipating
a
sharp
reduction
in
net
interest
income
projections,
and

Wells
Fargo
appears
to
be
nearing
an “inflection
point,”
Edward
Jones
analyst
Kyle
Sanders
wrote
in
a
note
to
clients.

“Overall,
we
think
WFC
is
building
momentum,”
Sanders
wrote,
referring
to
the
company
by
its
stock
ticker.

The
$1.9
trillion-asset
bank’s
outperformance
in
fees
also
softened
the
blow
of
the
projected
net
interest
income
reduction.

Wells
Fargo’s
stock
jumped
nearly
6%
after
the
company
outperformed
analyst
expectations,
with
net
income
of
$1.42
per
diluted
share
surpassing
estimates
of
$1.28
per
share.

The
bank
outperformed
expectations
even
after
recording
a
net
loss
of
10
cents
per
share
due
to
a
repositioning
of
the
investment
securities
portfolio.
The
move
mirrors


other
banks’
swapping
of
lower-yielding
bonds
they
bought
when
interest
rates
were
low
with
newer
ones
that
will
pay
them
more
over
time.

Noninterest
income
rose
to
$8.7
billion
from
$7.8
billion
a
year
ago,
driven
by

Wells
Fargo’s
venture
capital
investments
and
investment
banking
fees,
a
business
the
company
has


been
overhauling
in
recent
years.

Provisions
for
credit
losses
were
down
11%
from
a
year
ago
to
$1.1
billion,
with
lower
allowances
across
most
loan
portfolios
partially
offset
by
a
higher
allowance
for
credit
card
loans
that
was
driven
by
an
increase
in
balances,
the
bank
said.

Both
consumer
and
commercial
customers
have “remained
resilient,”
CEO
Charlie
Scharf
told
analysts,
though
he
flagged
continued
weakness
in
the
office
commercial
real
estate
market.

Scharf,
who
came
onboard
to
overhaul
the
bank
in
late
2019,
said
the
company’s “earnings
profile
is
very
different”
than
when
he
first
joined.

Fee-driving
businesses
have
given
it
more
diverse
sources
of
revenue,
as
has
the
company’s
investments
in
growing
its
credit
card
business,
he
said.

Wells
Fargo
recently
launched
two
co-branded
cards
with
the
travel
website
Expedia.
Other
notable
highlights
include
a
multi-year
auto
financing
partnership
with
Volkswagen.

The
results
came
weeks
after

Wells
Fargo
was
hit
with


an
enforcement
action
from
bank
regulators,
which
cited
shortcomings
in
how
the
company
guards
against
money
laundering.
Some
investors
have
since
worried
that

Wells
Fargo,
which
earlier
this
year
looked
to
be
in
better
shape
with
regulators,
may
be
further
away
from
getting
freed
from
a
regulatory-imposed
asset
cap.

Bloomberg
News


reported
last
month
that

Wells
Fargo
submitted
an
outside
review
of
its
reformed
operations
to
the
Federal
Reserve,
a
milestone
in
the
company’s
work.
The
Fed
imposed
the
asset
cap
in
2018
following
the
bank’s
consumer
abuse
scandals.

The
timeline
has


stretched
far
beyond
what
now-ousted
executives
once
hoped.
But
investors
have
salivated
over
the
possibility
that
the
Scharf-led
turnaround
is
almost
complete,
potentially
supercharging
the
bank’s
growth.
The
bank’s
stock
price
has
risen
more
than
20%
this
year
partly
over
those
hopes.

Scharf
declined
to
comment
on
the
timeline
for
any
regulatory
actions,
telling
one
analyst
that
the
2018
order
is “very
readable”
and
lays
out
what

Wells
Fargo
needs
to
do
to
satisfy
regulators.

“When
that’s
done,
we
find
out
about
it,
and
you
find
out
about
it,”
Scharf
said,
adding
that
the
company
is “very
focused
on
getting
the
work
done
and
feel
good
about
our
ability
to
get
it
done.”