Net interest income may fall significantly in FY24F
- 4Q23 revenue upbeat on better-than-expected NII and fees
- Modest credit deterioration with higher allowances for cards and commercial real estate loans
- Management guided for fall in FY24F net interest income
4Q23 revenue upbeat on better-than-expected NII and fees. Total revenues grew 2%y-o-y/-2% q-o-q to US$20.5bn, above consensus estimates of US$20.3bn, attributable to better-than-expected net interest income (-5% y-o-y/-3% q-o-q) and non-interest revenue (+17% y-o-y/-1% q-o-q) while expenses declined 8% y-o-y (mainly on US$1.9bn lower operating losses) but increased 1% q-o-q. Credit costs of US$1.3bn (+34% y-o-y/+7% q-o-q) saw higher allowances for cards and commercial real estate (CRE) loans mostly in the office portfolio. Wells Fargo also saw 3% q-o-q increase in non-performing assets driven by office CRE loans, offset partially by lower residential mortgage loans. Net profit increased by 9% y-o-y/40% q-o-q to US$3.4bn after taking into account a US$1.9bn charge from a special assessment by the FDIC in relation to the regional banks’ rescue in 2023, partially supported by a US$621m tax benefit during 4Q23. Adjusted earnings per share of US$1.29 came in ahead of consensus estimates of US$1.17. CET1 ratio improved 40bps q-o-q to 11.4%. Loans remained declined 1% y-o-y and q-o-q to US$938bn while deposits declined 3% y-o-y/ flat q-o-q to US$1.3tr.
Management guided for fall in FY24F net interest income. Management guided for ~7-9% y-o-y decline for FY24F NII from US$52.8b, which is lower than expectations, assuming that asset cap remains in place for FY24F. Management assumptions are for NII to trough towards end-2024. While there is modest credit deterioration, management continued to shore up capital for potential commercial real estate related losses.