(Bloomberg) — Wells Fargo & Co. (WFC) warned it won’t be able to whittle away costs as fast it previously forecast this year after the banking giant posted higher-than-expected expenses in the second quarter.
Expenses for the quarter climbed 2% to $13.3 billion, according to a statement Friday. That compares with the 0.2% increase that analysts had expected, and includes $493 million of operating losses amid ongoing customer remediation.
The lender now expects non-interest expenses to fall just 2.8% to $54 billion this year, up from an earlier forecast of $52.6 billion. Wells Fargo said the increase was driven by higher revenue-related compensation expenses, more operating losses and customer remediation costs than expected, and a Federal Deposit Insurance Corp. special assessment tied to last year’s regional-bank failures.
Shares of San Francisco-based Wells Fargo slumped 7.4% to $55.70 at 9:34 a.m. in New York. They’ve gained 14% this year.
“Our risk and control work remains our top priority, and we are also continuing to execute on our strategy to better serve our customers and drive higher returns over time,” Chief Executive Officer Charlie Scharf said in the statement.
Reducing costs has been a key part of Scharf’s turnaround plans since he took the helm, though those efforts have often been hamstrung by hefty losses tied to regulatory sanctions over the years. Last month, Chief Financial Officer Mike Santomassimo said the company has “hundreds of different projects” aimed at making Wells Fargo run more efficiently.
Elsewhere in Wells Fargo’s earnings, the company’s net interest income dropped to its lowest level in two years in the second quarter, the latest sign that the industry is no longer benefiting from persistently high interest rates.
Rivals JPMorgan Chase & Co. and Citigroup Inc. also reported quarterly results Friday. Taken together, the results are expected to show how, after higher rates fueled their profits for years, big banks’ net interest income is now under pressure as they battle muted loan demand and face pressure from customers to pay out more for deposits.
Wells Fargo said it still expects NII for all of this year to be down 7% to 9% from $52.4 billion in 2023. While that reiterated an earlier forecast, the lender did say it expects it to be in the worse end of that range.
In the company’s investment-banking business, revenue soared 38% to $430 million, while total markets revenue climbed 16% to $1.79 billion.
“The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading and investment-banking fees,” Scharf said.
Also in the second-quarter results:
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Net income for the period dropped to $4.9 billion, or $1.33 a share, beating the $1.29 average of analysts’ estimates.
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Provisions for the quarter were $1.24 billion. While that was an increase from the first three months of the year, it was still better than the $1.28 billion that analysts were expecting.
(Updates with FDIC assessment in third paragraph, shares in fourth.)
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