Wells Fargo Q1 Results: Profit shrinks on lower interest income

Wells Fargo's net interest income (NII) -- the difference between what it earns on loans and pays out for deposits -- fell 8% to $12.23 billion.

The bank also paid $284 million into a Federal Deposit Insurance Corp fund that was drained last year after three regional lenders failed.

The shifting U.S. interest rate outlook is an important factor that will drive banks' future profits. U.S. consumer prices increased more than expected in March, leading financial markets to anticipate that the Federal Reserve would delay cutting rates until September.

Higher-for-longer rates could boost lenders' earnings as they bring in more money from interest payments.

But the interest rate increases have also made it more costly for banks, prompting them to pay more to keep deposits from customers who are seeking higher yields for their money. Tighter monetary policy could also crimp borrower demand and dampen economic activity, including Wall Street dealmaking.

Wells Fargo said in January its NII could fall 7% to 9% this year.

The bank is operating under a $1.95 trillion asset cap that prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal.

The lender still has eight open consent orders after the U.S. Office of the Comptroller of the Currency (OCC) terminated a 2016 punishment in February.

"We reached an important milestone in the first quarter when the OCC announced the termination of a consent order it issued in 2016 regarding sales practices misconduct," CEO Charlie Scharf said in a statement.

"The remaining risk and control work continues to be our top priority and we will not be satisfied until all work is complete," he added.

Scharf became CEO in 2019, the fourth person to lead Wells Fargo since the scandal first emerged. He has worked to turn the lender around, cutting costs and exiting businesses after it racked up billions in lawsuits and regulatory fines.