Wells Fargo posted third-quarter profit that topped analyst expectations as a surge in investment-banking fees helped counter a dip in lending revenue as interest rates fall.
Investment-banking fees rose 37% to $672 million in the third quarter, the San Francisco-based bank said in a statement Friday. That helped buoy non-interest income, which climbed 12% to $8.7 billion in the period.
Net income for the quarter slipped 11% to $5.1 billion, or $1.42 a share, after the company recorded a $447 million loss on debt securities it holds as it repositioned its investment portfolio. Without those losses, earnings per share would have been $1.52, which compares with a $1.28 average of analyst estimates compiled by Bloomberg.
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"Our earnings profile is very different than it was five years ago as we have been making strategic investments in many of our businesses and de-emphasizing or selling others," Chief Executive Officer Charlie Scharf said in the statement.
The company has been building out its investment-banking business under Scharf, who said earlier this year that the opportunity is "staring us in the face."
Shares of Wells Fargo surged 5.1% to $60.72 at 9:38 a.m. in New York, and have gained 23% this year.
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Wells Fargo kicks off the earnings season for big U.S. lenders along with JPMorgan Chase, which is also releasing third-quarter results Friday. Rivals Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are set to report next week. Together, the reports offer investors a fresh look at the impact on the country's largest financial firms as the Federal Reserve enters the next phase of its efforts to engineer a soft landing for the U.S. economy.
Net interest income — what the bank makes from lending minus what it pays for deposits, and Wells Fargo's largest source of revenue — totaled $11.7 billion, down 11% from a year earlier and missing the $11.9 billion average estimate of analysts in a Bloomberg survey. It's the latest sign that the company is no longer benefiting from persistently high interest rates.
The company still expects net interest income for the full year to drop about 9%, which is in line with an earlier forecast.
Wells Fargo charged off $1.1 billion in loans in the quarter, which is less than the $1.3 billion analysts were anticipating. Chief Financial Officer Mike Santomassimo said last month that credit is overall doing well, and "it really is a story about office when you talk about losses" in commercial real estate lending.
Wells Fargo is still under a Fed-imposed asset cap limiting its balance sheet to its size at the end of 2017. The firm recently entered a new phase of its nearly seven-year effort to escape the restriction when it submitted a third-party review of its risk and control overhauls for the central bank's analysis and sign-off, Bloomberg News reported last month.
Still, the firm also was hit with a new enforcement action from the Office of the Comptroller of the Currency during the quarter, requiring the bank to strengthen systems for detecting money laundering and complying with international sanctions.
