(Bloomberg) — Wells Fargo & Co. rose the most in more than three months after posting profit that topped analysts’ estimates and offering an upbeat outlook for net interest income.
Shares of the company jumped as much as 5.5%, the most on an intraday basis since Jan. 6 and the biggest advance on the 24-company KBW Bank Index. They’ve gained 39% this year as U.S. lenders benefited from the government’s massive stimulus efforts and an economic rebound that’s kept the worst of the predicted pandemic fallout from materializing.
“If rates follow the current forward curve and commercial loans grow as the economic recovery gains momentum, which is expected by the industry, we would expect NII to land near the high end of the range,” Chief Financial Officer Mike Santomassimo said on a call with analysts. He also said the bank expected additional loan-loss reserve releases if the economy continued on its current trajectory.
First-quarter net income at the San Francisco-based bank rose to $4.74 billion, boosted by a larger-than-expected release of loan-loss reserves, according to a statement Wednesday. Non-interest expenses were $14 billion, up from a year earlier and a touch higher than analysts forecast, while net interest income was lower than expected.
The first-quarter results “reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities,” Chief Executive Officer Charlie Scharf said in the statement. “Charge-offs are at historic lows and we are making changes to improve our operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for us in the quarter.”
Scharf, who took over in late 2019, has focused on streamlining operations and pledged to shave $10 billion off annual expenses. The firm announced sales of its asset manager and corporate-trust unit in the first quarter, and the CEO said in January that its rail-leasing unit is on the chopping block too. Wells Fargo has said it has more than 250 expense initiatives in the works that will take three to four years.
Wells Fargo shares advanced 5.5% to $41.97 at 11:33 a.m. in New York. JPMorgan Chase & Co., which also reported first-quarter earnings Wednesday, was down 0.4%.
Wells Fargo remains under costly Federal Reserve-imposed restrictions that limit assets to their level at the end of 2017. In one of the first signs of success in the drive to escape the penalty, the company secured the Fed’s acceptance of a proposal it submitted last year.
“Our work to build the appropriate risk and control environment remains our top priority,” Scharf said in the statement. “This is a multiyear effort and there is still much to do, but I am confident we are making progress, though it is not always a straight line.”
The firm is working to complete the next steps needed to lift the punishment: adopting the plan and undergoing an independent review. Bloomberg reported in December that a number of top executives privately expect Wells Fargo won’t escape the asset cap before late this year, while key Fed officials see the process dragging into 2022 or beyond.
Also in Wells Fargo’s earnings:
Non-accrual loans fell 7.7% from the fourth quarter to $8.05 billion.Net interest income dropped 22% from a year earlier to $8.8 billionRevenue rose 2% to $18.1 billionThe bank’s efficiency ratio improved 6 percentage points from the fourth quarter to 77%Headcount shrank to 264,513 as of March 31, down 1.5% from Dec. 31
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