Wells Fargo's profit beats as rebound in dealmaking boosts investment banking

(Reuters) -Wells Fargo's fourth-quarter profit beat Wall Street expectations as a rebound in dealmaking activity bolstered the lender's investment banking business.

Shares of the bank rose 3.1% to $73.40 in premarket trading on Wednesday after it also forecast net interest income (NII) — or the difference between what it earns on loans and pays out for deposits — would increase in 2025.

Wall Street was bolstered by a rebound in activity last year. Increasing confidence spurred companies to issue equity and debt. Corporations also struck deals, lifting volumes from a decade low in 2023.

Bankers expect 2025 to be a much busier year for deals, buoyed by hopes of lower corporate taxes, easing regulations and a broadly pro-business stance under President-elect Donald Trump.

Wells Fargo (NYSE:WFC )'s investment banking fees jumped 59% to $725 million in the quarter compared with a year earlier.

Under CEO Charlie Scharf's leadership, the bank has sought to diversify its revenue by bolstering fee-based businesses, including investment banking and trading.

The bank made a string of hires from rivals last year, including dealmaking veteran Doug Braunstein, to beef up its ranks as it expands investment banking.

Global investment banking revenue jumped 26% to $86.80 billion in 2024, with North America surging 33% compared with a year earlier, according to data from Dealogic.

Wells Fargo recorded severance expenses of $647 million in the fourth quarter, lower than the $969 million a year earlier.

The bank's headcount dropped to about 217,500 by the end of 2024, compared with nearly 226,000 at 2023-end.

Wells Fargo also benefited from easier comparisons with the year earlier, when it took sizeable charges related to severance costs and a special assessment fee it had to pay to refill a government deposit insurance fund.

The bank's non-interest expense fell 12% to $13.90 billion in the quarter compared with a year earlier.

On an adjusted basis, Wells Fargo earned $1.58 per share in the fourth quarter, beating analysts' expectation of $1.35 per share, according to estimates compiled by LSEG.

NII SET TO GROW IN 2025

Wells Fargo's NII fell about 7% to $11.84 billion in the quarter compared with a year earlier, hurt by the impact of lower rates on floating rate assets and lower loan balances.

Analysts had expected the bank to earn $11.72 billion.

Despite the slide in NII, the bank projected that interest income would begin to grow again in 2025, driven by a drop in deposit costs and a recovery in loan demand.

A string of interest rate cuts by the U.S. Federal Reserve has started to ease the pressure on banks as they pay out less to customers.

The bank forecast its NII would rise about 1% to 3% this year from the 2024 level of $47.68 billion. That compares with analysts' expectation of $47.13 billion.

REGULATORY FIXES

Under Scharf's leadership, the bank has undergone a multi-year effort to fix compliance problems from a fake accounts scandal that erupted in 2016.

The Fed imposed a $1.95 trillion asset cap in 2018 that prevents Wells Fargo from growing until regulators deem it has fixed failings in its governance and risk management.

Scharf said last year the asset cap was curtailing the bank's ability to take in more deposits and expand its trading business, two potential growth areas for Wells.

Reuters reported in November that Wells Fargo was in the last stages of a process to pass regulatory tests to lift the asset cap that could happen as early as the first half of 2025.



"I'm confident that we will successfully complete the work required in our consent orders and embed an operational risk and compliance mindset into our culture," Scharf said on Wednesday.

Wells Fargo's stock jumped 42.7% in 2024, outperforming rivals JPMorgan, Bank of America, and Citigroup (NYSE:C ) as well as the broader KBW Bank index.

Source: Investing.com