(Reuters) -Wells Fargo’s second-quarter profit declined and it missed estimates for interest income as the lender shelled out more to hold on to customers’ deposits amid intense competition, sending its shares down more than 5% lower in premarket trading.
Lenders are now facing the fallout of higher-for-longer interest rates as more borrowers balk at taking out new loans at high costs. Banks are also having to pay more to retain customers who are hunting for greater yields for their money.
Wells Fargo’s net interest income (NII) — or the difference between what it earns on loans and pays out for deposits — slid 9% to $11.92 billion in the second quarter.
Analysts on average had expected $12.12 billion, per LSEG data.
NII could fall 7% to 9% this year, it reiterated on Friday.
“We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” CEO Charlie Scharf said in a statement.
Investment banking revenue at Wells Fargo surged 38% to $430 million in the second quarter.
Under Scharf, the fourth-largest U.S. bank has also beefed up its investment banking and trading activities, recruiting some top executives from rivals.
The new hires include JPMorgan Chase veterans Doug Braunstein and Fernando Rivas. While Braunstein joined as vice chairman to also help with Wells Fargo’s advisory business, Rivas was named co-CEO of its corporate and investment banking (CIB) division.
Meanwhile, merger and acquisition volumes hit $1.6 trillion globally in the first half of the year, up 20% from a year earlier, Dealogic data showed. Equity capital market volumes climbed 10% during the same period.
Net income fell to $4.91 billion for the three months ended June 30, versus $4.94 billion, a year earlier, the lender reported on Friday.
On a per-share basis, the company reported $1.33, compared with $1.25 a year earlier.
Wells Fargo remains shackled by a $1.95 trillion asset cap that prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal.
The bank still has eight open consent orders after the U.S. Office of the Comptroller of the Currency in February terminated a 2016 punishment.
(Reporting by Noor Zainab Hussain and Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen and Sriraj Kalluvila)
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