Wells Fargo's third-quarter profits fell as earnings were hit by a $447 million net loss from restructuring its debt investments and an 11% drop in net interest income.
The San Francisco bank said Friday its net income slid to $5.1 billion in the three months ended Sept. 30, from $5.8 billion a year ago.
Rising costs on customers' deposits have pinched the company's margins over the past year, and the pressure appears to have continued in the last quarter. Net interest income fell to $11.7 billion from $13.1 billion in the year-ago quarter, and the company told investors to expect its full-year figure to be down 9%.
Net income of $1.42 per diluted common share came in above analyst estimates of $1.28 per share, according to S&P Capital IQ data.
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's 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.
CEO Charlie Scharf, who came onboard to overhaul the bank in late 2019, said, "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. Our revenue sources are more diverse and fee-based revenue grew 16% during the first nine months of the year, largely offsetting net interest income headwinds."
"While our risk and control work remains our top priority, we continue to invest to drive more diverse and stronger growth and higher returns," Scharf said, citing the launch of two co-branded credit cards and a multi-year co-branded agreement for auto financing.
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 17% this year partly over those hopes.
