Lifting of regulatory restrictions fails to drive strong revenue generation; Wells Fargo & Company (WFC.US) Q3 revenue misses expectations.

Wells Fargo & Company (WFC.US) reported mixed third-quarter results. Q3 revenue rose 2% year-over-year to $21.87 billion, but fell short of market expectations of approximately $22.32 billion. GAAP earnings per share came in at $1.87, up 13% year-over-year, slightly beating market expectations. Q3 net interest income (the difference between what lenders earn from loans and what they pay out on deposits) rose 5% in the quarter to $12.52 billion, driven by higher loan and investment securities balances, repricing of fixed-rate assets amid falling interest rates, and balance sheet expansion in the markets business, partially offset by lower yields on floating-rate assets and higher costs on interest-bearing commercial deposits. Non-interest income was $9.353 billion, down 1% year-over-year, primarily due to lower trading gains, reduced leasing income following the sale of the railcar leasing business earlier in the year, and declines in venture capital gains and mortgage banking income. On credit costs, the provision for credit losses in the quarter was $1.029 billion, far above $681 million in the same period last year, mainly reflecting higher reserve builds driven by rising commercial and industrial loan and auto loan balances, while commercial real estate reserves declined somewhat; net charge-offs were $983 million, with an annualized net charge-off rate of 0.38%, roughly flat compared with the same period last year. Since the Federal Reserve lifted its years-long regulatory asset cap on the bank, it has been able to deploy more of its balance sheet, giving it greater room to compete for loans. Wells Fargo & Company is relying on credit cards and auto loans to expand its consumer lending business, riding healthy consumer trends. On capital and scale, average loans and average deposits both rose 11% year-over-year (to $1,033.4 billion and $1,482.9 billion, respectively); Q3 ROTCE was 16.3%, and 16.2% for the first three quarters (14.7% in the same period last year); ROE was 13.8%; the Common Equity Tier 1 (CET1) ratio fell to 10.0% (11.0% in the same period last year), mainly due to share repurchases and balance sheet expansion. The bank repurchased 28.6 million common shares in the quarter for approximately $2.5 billion. The U.S. economy has remained resilient thanks to heavy business investment in artificial intelligence, strong consumer spending, and a relatively stable labor market. "While the economic outlook is uncertain and consumer sentiment is mixed, our data shows that our consumer and business customers are in good shape," CEO Charlie Scharf said in a statement. Bank of America Corp also benefited from reinvesting matured assets into higher-yielding instruments, boosting overall margins. Chief Financial Officer Mike Santomassimo was optimistic last month about the bank's loan growth forecast for this year, saying credit and spending trends remain healthy despite concerns that rising costs could squeeze household budgets. Although the market expected strong bank earnings, bank stocks have recently sold off as investors grew cautious about the prospect that continued Federal Reserve rate hikes could dampen economic activity. The KBW Bank Index has fallen more than 12% from its August high. While analysts expect rising bond yields to support Wells Fargo & Company's net interest income in the near term, rising funding costs could weigh on economic growth. Following the earnings release, the bank's shares fell about 1% in premarket trading. As of Monday's close, the stock has fallen more than 10% year-to-date.