WASHINGTON (AP) — Wells Fargo reported better-than-expected earnings despite lower interest income in the second quarter, a potential concern for investors with a Fed interest rate cut likely on the horizon. Shares in the consumer banking giant slid 3%.
Wells Fargo & Co., still under growth restrictions by regulators after years of missteps and scandals, reported net interest income for the quarter of $12.1 billion. That’s down 4% from $12.5 billion in the second quarter last year and a 2% decline from the first quarter of 2019. Analysts surveyed by FactSet were expecting $12.2 billion in net interest income for the bank.
Net interest income carries extra importance for commercial banks like Wells Fargo, who rely less heavily on fee revenue than investment banks.
Like other banks, Wells Fargo has benefited from a rise in interest rates in recent years, somewhat offsetting the restrictions placed on the bank by regulators. But the days of rising rates appear to be coming to an end for now, as the Fed has recently signaled that it could cut rates at its meeting at the end of the month.
Overall, the San Francisco-based bank reported second-quarter net income rose 19% to $6.21 billion, or $1.30 per share, from $5.19 billion, or 98 cents per share, a year earlier.
The results topped Wall Street expectations. Analysts surveyed by FactSet expected earnings per share of $1.17.
The biggest U.S. mortgage lender posted revenue of $21.58 billion, essentially the same as last year’s second quarter, but beat forecasts of $20.9 billion.
Last year, the Federal Reserve capped the size of Wells Fargo’s assets after an assortment of scandals, beginning in 2016 with the uncovering of millions of fake checking accounts its employees opened to meet sales quotas.
The Federal Reserve has not said when it will remove its restrictions on Wells’ business. Federal Reserve Chairman Jerome Powell said earlier this year that the bank had more work to do to meet the Fed’s demands.
Further complicating matters, Wells is still without a permanent CEO after Tim Sloan abruptly resigned after what many considered a poor performance defending the bank in front of Congress in March.
Interim CEO Allen Parker said during a call with analysts that the bank won’t set targets beyond 2019 until a permanent chief executive is in place.
“We’re still at the point where the savings we’re achieving are not reaching the bottom line,” he said. “We anticipate that this could continue next year.”