Wells Fargo set aside a lot more money for potential loan losses, stock falls

Citi analyst Keith Horowitz said he expects investors to focus on Wells Fargo’s expectation for a drop of about 7% to 9% in 2024 net interest income, with a slight loan decline on the horizon, as well as stable deposits and a trough near the end of the current year.

“Our view is expectations were for a 7%-8% plus decline, so stock reaction will show how low the bar got,” Horowitz said.

The stock
WFC,
+0.88%
closed Friday with a drop of 3.3% to $47.40, its lowest level in a month, and paced decliners in the Financial Select Sector SPDR ETF’s
XLF,
which fell by 0.2%.

Provision for credit losses for the quarter to Dec. 31 jumped 34% to $1.28 billion, as increases in the allowance for credit losses in credit card and commercial real-estate loans offset lower allowances for auto loans.

Meanwhile, average loans fell 1.1% to $938 billion. Deposits were down 2.9% to $1.34 trillion.

Net income rose to $3.45 billion, or 86 cents a share, from $3.16 billion, or 75 cents a share, in the same period a year ago. The FactSet consensus for earnings per share was 86 cents.

Revenue grew 2.2% to $20.48 billion, above the FactSet consensus of $20.30 billion.

Net interest income fell 4.9% to $12.77 billion, due to lower deposit and loan balances, but topped expectations of $12.76 billion. Noninterest income climbed 16.8% to $7.71 billion to beat forecasts of $7.51 billion, amid higher trading revenue and investment banking fees and improved results in the venture capital business.

The stock has run up 21.2% over the past three months through Thursday, while the financial sector ETF has rallied 13.9% and the S&P 500 index
SPX,
-0.07%
has gained 10.3%.

Steve Gelsi contributed