Wells Fargo Falls Short on Loan and Fee Revenue Amid Declining Interest Rates

Wells Fargo & Co. reported first-quarter results that fell below analyst expectations for its main revenue sources, despite the banking sector experiencing the strongest rise in corporate lending in over three years.

The bank’s shares declined 0.7% in early trading in New York.

Net interest income, which measures the difference between earnings from loans and payments for deposits, reached $12.1 billion. Although this was higher than the same period last year, it fell short of the nearly $12.3 billion forecast by analysts. Noninterest income, which includes fees from various business segments, came in at $9.35 billion, also below the consensus estimate of $9.5 billion.

Data from the Federal Reserve showed that U.S. banks increased commercial and industrial loans by 12.8% on an annualized basis in the first quarter, the largest jump since 2022. This uptick followed a prolonged period of hesitation among companies that had delayed borrowing due to uncertainty around tariffs for much of the previous year, anticipating more favorable policies under Donald Trump's return to the presidency.

Wells Fargo experienced growth in both loan and deposit balances, but this was offset by the effect of lower interest rates on floating-rate assets, as outlined in an investor presentation.

“Despite market volatility, the fundamental economy remains resilient, and the financial health of the consumers and businesses we serve is strong. However, the impact of rising oil prices may take time to fully materialize,” Wells Fargo CEO Charlie Scharf said in a statement on Tuesday. “We will keep a close watch on trends and adjust as needed.”

Wells Fargo also provided details on its lending to non-bank financial institutions, a category that often includes private credit firms. Investors are monitoring banks’ exposure in this area, concerned that ongoing redemptions and riskier lending practices by nonbank lenders could lead to losses for their banking partners.

According to sources, Wells Fargo was a lender to the failed UK firm Market Financial Solutions Ltd. and also participated in syndicated loans to Goeasy Ltd., a Canadian subprime lender facing challenges with bad loans.

Out of Wells Fargo’s total $210.2 billion in loans to nonbank financial firms, approximately $36.2 billion were extended to private credit companies. The broader total also includes other types of financing, such as subscription lines for private equity funds, as well as loans to real estate and consumer lending firms.

Overall, Wells Fargo maintained stable credit quality in the first quarter. Net charge-offs for bad loans totaled $1.1 billion, matching analyst estimates. Provisions for loan losses, set aside to cover potential future defaults, increased by 22% to $1.14 billion, slightly above the $1.13 billion expected by analysts.

Wells Fargo’s earnings, along with those of JPMorgan Chase & Co. and Citigroup Inc., which also reported first-quarter results on Tuesday, shed light on how major banks performed during another turbulent quarter. Expectations for interest rate cuts this year have diminished as inflation concerns grow, exacerbated by rising oil prices amid conflict involving Iran.

These conditions contributed to another quarter of trading gains for the largest banks. Wells Fargo also saw benefits, though on a smaller scale. The bank’s net gains from trading activities rose 38% to $1.35 billion in the first quarter. As the company’s markets business expands, trading’s contribution to net interest income continues to grow, adding $481 million in the first quarter.

In other earnings highlights, market volatility during the quarter drove a 10% increase in investment advisory fees and brokerage commissions, which reached $3.49 billion. This growth reflected higher market valuations, increased retail brokerage commissions, and greater transactional activity, according to the earnings presentation.

Wells Fargo’s stock has been among the weakest performers in the KBW Bank Index this year. Investor attention has turned to the bank’s growth strategy since it was freed from a federal asset cap last June after more than seven years. The bank raised a key medium-term return target last October, but executives have emphasized that growth will be gradual.