(April 14): Wells Fargo & Co missed analysts’ estimates for its primary income streams in the first quarter (1Q) even as the banking industry saw the biggest jump in corporate borrowing in more than three years.
Net interest income (NII), the difference between what the company makes from lending and pays for deposits, totalled US$12.1 billion. That was up from a year earlier but fell short of analysts’ estimates of almost US$12.3 billion. Non-interest income, an aggregation of fees across business lines, came in at US$9.35 billion, also lower than analysts’ consensus of US$9.5 billion.
Well Fargo’s shares slumped 6.2% at 9.35am in New York, and are down 13% this year.
US banks expanded their commercial and industrial loans by 12.8% in 1Q on an annualised basis, the largest increase since 2022, according to Federal Reserve data. That marked a long-awaited surge following Donald Trump’s return to the presidency, with companies that had been expecting business-friendly policies holding back on borrowing amid tariff uncertainty for much of last year.
For Wells Fargo, both loan and deposit balances grew, but that was countered by the impact of lower interest rates on floating-rate assets, according to an investor presentation.
“While markets have been volatile, we still see continued resiliency in the underlying economy and the financial health of the consumers and businesses we serve remains strong, though the impact of higher oil prices will likely take some time to materialise,” Wells Fargo chief executive officer Charlie Scharf said in a statement on Tuesday. “We will continue to monitor trends and respond accordingly.”
See also: JPMorgan posts record revenue of US$11.6 bil in 1Q
Wells Fargo’s results, along with those of JPMorgan Chase & Co and Citigroup Inc, which also reported 1Q earnings on Tuesday, provided information on how the largest lenders fared during another volatile quarter. Hopes for interest-rate cuts this year are fading as inflation fears rise, with the Iran war driving up oil prices.
Given the outlook that borrowing costs could stay higher for longer, investors would have expected that to be a tailwind for Wells Fargo, with the composition of its assets more sensitive to rate changes, said Keefe, Bruyette & Woods analyst Christopher McGratty. The NII miss and unchanged 2026 guidance is likely to cause modest disappointment and weigh on the bank’s shares, he wrote in a note to clients.
Wells Fargo also reported details of its loan book to non-bank financial firms, a category that typically includes loans to firms related to private credit. Investors are closely watching banks’ exposure there, concerned that nonstop redemptions and riskier underwriting by non-bank lenders could result in losses to their bank backers.
See also: S&P 500 wipes out 2026 loss on Iran deal hopes
Wells Fargo was a lender to busted UK firm Market Financial Solutions Ltd, according to people familiar with the matter, and also provided syndicated loans to Goeasy Ltd, a Canadian non-prime lender grappling with bad loans.
Of Wells Fargo’s total US$210.2 billion of loans to nonbank financial firms, roughly US$36.2 billion were made to private-credit firms. The larger amount also includes other types of relationships, such as subscription lines to private equity funds, as well loans to firms in real estate and consumer lending.
“These loans are structured quite well and provide a good risk-return across each of the underlying portfolios,” Wells Fargo chief financial officer Mike Santomassimo told reporters on a media call on Tuesday morning. “We’re comfortable with the risks that are embedded in that portfolio.”
Overall, Wells Fargo’s credit quality was stable in 1Q. Net charge-offs of bad loans totaled US$1.1 billion, in line with analysts’ estimates. Loan-loss provisions, the money set aside in case of payment failures in the future, rose 22% to US$1.14 billion, compared with analysts’ expectations of US$1.13 billion.
Elevated market volatility fuelled another quarter of trading windfalls for the biggest banks. Wells Fargo also benefitted from it, but at a much smaller scale. Its net gains from trading activities increased by 38% to US$1.35 billion in 1Q. As the company’s markets business expands, the share of trading in the NII mix continues to rise, providing US$481 million for 1Q.
Elsewhere in earnings, investment advisory fees and brokerage commissions grew 10%, to US$3.49 billion. It reflected higher market valuations, higher retail brokerage commissions and higher transactional activity, according to the earnings presentation.
The company’s shares have been lingering at the bottom of the KBW Bank Index this year. Investors shifted their focus towards its execution on growth after it was released last June from a federal asset cap after more than seven years. It raised a key return target for the medium term last October, but executives have repeatedly said the growth will be step by step.
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