Wells Fargo tempers cost-cutting outlook as it aims to improve risk management

Daniel Fowler
July 19, 2019

He described pricing for three Federal Reserve interest-rate cuts as too aggressive.

Net interest income carries extra importance for commercial banks like Wells Fargo, who rely less heavily on fee revenue than investment banks.

The trio of results moved markets into the heart of second-quarter earnings season, which comes against a backdrop of uncertainty over global trade and an anticipated loosening of monetary policy, with the Fed expected to cut interest rates later this month. The bank also announced better-than-expected figures for quarterly income and revenue.

The largest USA bank on Tuesday cut its full-year outlook for net interest income - revenue from customers' loan payments minus what the bank pays depositors - by $500 million. Investors are eagerly awaiting the Federal Reserve's meeting at the end of July to see if the central bank will opt to lower interest rates, an action Chairman Jerome Powell hinted at during two-days of testimony on Capitol Hill.

But shares were choppy after the report, with analysts pointing to the bank's forecast for $57.5 billion in 2019 net interest income, down from the prior $58 billion forecast.

"We continue to see positive momentum with the USA consumer - healthy confidence levels, solid job creation and rising wages - which are reflected in our Consumer & Community Banking results", he said in a statement.

Wells Fargo experienced a dip in net interest income due to a significant jump in interest payments for deposits.

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Parker was thrust into the job in March when former CEO Tim Sloan resigned abruptly, saying pressure from politicians and regulators had become a distraction in running the scandal-plagued bank. Visit MarketWatch.com for more information on this news.

Revenue from the corporate and investment bank slipped 3% from last year's record to $9.6 billion as market uncertainty drove investors to the sidelines and damped corporate sentiment.

Wells Fargo has been under a regulatory microscope since revelations that the bank had opened potentially millions of unauthorized accounts in 2016.

At Goldman Sachs, net income was $2.2 billion, down 6.4% from the year-ago period.

Goldman suffered from a decline in fixed income, currency and commodity trading, a weakness at other large banks.

Equity trading was a bright spot here for Goldman as revenue increased by 6%, its second highest quarterly performance in four years. Debt underwriting revenue also fell. Shares fell 0.2% premarket and have gained 1.4% in 2019 through Monday, while the S&P 500 has gained 20.2%. Horan Capital Advisors LLC. purchased a new position in shares of Wells Fargo & Co in the 1st quarter valued at about $27,000.

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