By Imani Moise
(Reuters) – Wells Fargo & Co <WFC.N> reported higher quarterly profit on Tuesday despite flat revenue as the bank benefited from aggressive cost-cutting.
Revenue declined at Wells’ community bank and wholesale bank as net interest income was squeezed by lower interest rates and higher deposit costs. But profit in those segments jumped 26% and 6%, respectively, due to lower overall costs.
Total expenses dropped 4% to $13.4 billion (£10.76 billion) and total net interest income fell 3% to $12.1 billion.
Wells Fargo, the fourth largest U.S. bank by assets, has been leaning on cost cuts to stabilize its bottom line amid sluggish revenue trends in the wake of sales practices scandals that spread to each of its primary business segments and claimed two chief executives.
Interim Chief Executive Officer Allen Parker was thrust into the job in March when former CEO Tim Sloan resigned abruptly, saying pressure from politicians and regulators had become a distraction in running the scandal-plagued bank.
Now the San Francisco-based bank must also contend with fresh macroeconomic uncertainty from a changing interest rate environment that’s pressuring lending margins across the industry. The U.S. Federal Reserve is widely expected to cut rates later this month.
Wells Fargo became the third big bank to report contracting net interest margins, a closely watched metric that measures the difference between how much a bank is charging on its loans and how much it pays for deposits. The figure dropped 11 basis points to 2.82% in the most recent quarter.
Wells Fargo has cut its net interest income guidance twice to reflect the broader economic outlook. Wells Fargo relies heavily on interest rates to pad its revenue since it has tons of rate sensitive deposits and mortgage securities.
Still, The bank showed that it was it was able to grow its loan book despite macroeconomic headwinds.
Total loans grew 0.6% to $949.88 billion in the quarter.
“This the best loan growth seen in over two years at the company, which is an encouraging sign,” said Edward Jones analyst Kyle Sanders.
Deposits were roughly flat at $1.3 trillion.
Net income applicable to common stock rose http://pdf.reuters.com/htmlnews/htmlnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20190716:nBw7qdcmPa to $5.85 billion, or $1.30 per share, in the second quarter, from $4.79 billion, or 98 cents per share, a year earlier.
Analysts had expected a profit of $1.15 per share, according to IBES data from Refinitiv. Revenue of $21.6 billion was slightly ahead of the $20.9 billion estimate.
Shares were up 0.2 percent in early trading.
(Reporting by Imani Moise in New York and Noor Zainab Hussain in Bengaluru; Editing by Sriraj Kalluvila and Nick Zieminski)