Wells Fargo warns of lower interest income in 2024, shares drop
By Noor Zainab Hussain, Manya Saini and Carolina Mandl
(Reuters) -Wells Fargo on Friday posted higher fourth-quarter profit, beating analysts' expectations as it cut costs.
But the lender warned that its net interest income (NII) could fall 7% to 9% this year, sending shares down more than 3%.
«We expect net interest income to decline from the high levels we saw as rates were rising last year,» CEO Charlie Scharf told analysts. While the implied path for interest rates could weigh on the bank's NII, «significant uncertainty exists regarding eventual timing and extent of Federal Reserve interest rate actions.»
The Fed's interest rate increases have made it more costly for banks to keep deposits for customers who are moving their money in search of higher yields.
When depositors leave or shift into higher-yielding products, «that's going to have a pretty substantial impact,» Chief Financial Officer Mike Santomassimo said. «And so that is a big driver of what the (NII) decline is for the rest of the year.»
At the same time, rising rates have also deterred borrower demand, weighing on a key source of income for banks. Wells Fargo sees a slight decline in average loans this year.
The lender's net income rose 9% to $3.4 billion, or 86 cents a share.
It forecast annual expenses would decline $3 billion from 2023, mainly on expected lower severance expenses. It took a onetime charge of $1.9 billion to refill a government fund that was drained of $16 billion after three regional lenders collapsed.
Wells Fargo booked $1.1 billion in severance costs in the fourth quarter, mainly for layoffs, although it also announced plans to hire bankers and advisers. This was higher than a December estimate.
Its headcount fell 5% to 225,869
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