Wells Fargo Q4 Results: Profit Beats Estimates on Dealmaking Rebound as It Raises Interest Income Forecast

Wells Fargo’s profit beat expectations in the fourth quarter and was driven by a recovery in dealmaking activity and forecasts that it will earn more from interest payments this year.

Shares of the bank rose 3.5% to $73.68 in premarket trading on Wednesday.

Wall Street was boosted by a recovery in activity last year. A boost in confidence encouraged companies to issue equity and debt. Corporations also made deals, lifting volumes from a decade low in 2023.

“There’s a sense of optimism that people have for the levels of activity that we should see in 2025 — which obviously needs to translate into actual deal activity,” said Michael Santomassimo, Wells Fargo’s chief financial officer.

“Market participants feel more confident in their ability to execute on M&A.”

Rival JPMorgan also beat profit expectations on investment banking strength and 2025 net interest income exceeded estimates.

Wells Fargo’s investment banking fees rose 59% to $725 million in the quarter from a year ago.

Santomassimo added that consumer sentiment continues to be strong, with credit performance remaining fairly stable.

Under the leadership of CEO Charlie Scharf, Wells Fargo has sought to diversify its revenue by promoting fee-based businesses, including investment banking and trading.

The bank also reported severance costs of $647 million in the quarter, down from $969 million a year ago.

By the end of 2024, the number had fallen to around 217,500, compared to around 226,000 at the end of 2023.

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

Wells Fargo’s net interest income (NII) — the difference between what it earns on loans and pays for deposits — fell nearly 7% to $11.84 billion in the quarter from a year earlier, hurt by the impact of lower rates on floating rate assets. was and lower loan balances.

Despite the slide in NII, the bank expects interest income to start rising again in 2025, driven by lower deposit costs and recovery in loan demand.

The lender forecasts NII to grow by about 1% to 3% this year from the 2024 level of $47.68 billion. Analysts expect the bank to report interest income of $47.13 billion in 2025.

David George, an analyst at Baird, said the company’s forecast includes modest loan and deposit growth, securities reinvestment, two Federal Reserve interest rate cuts and the bank’s asset cap remaining unchanged.

“If the asset cap is removed we expect Wells Fargo to lean towards loan growth which potentially drives some upside versus today’s guidance,” George added.

Regulatory Fixes

Under Scharf’s leadership, the bank has spent several years trying to fix compliance problems stemming from the 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 fix failings in its governance and risk management.

Scharf said the asset cap last year was reducing the bank’s ability to take on more deposits and expand its trading business, two potential growth areas for Wales.

Reuters reported in November that Wells Fargo was in the final stages of passing regulatory tests to lift the asset cap, which could happen in the first half of 2025.

“I am confident that we will successfully complete the work required in our consent order and embed an operational risk and compliance mindset into our culture,” Scharf said Wednesday.