In the midst of fierce competition for consumers’ money, Wells Fargo’s second-quarter earnings decreased and the company missed analysts’ projections for interest income on rising deposit costs. As a result, its shares fell more than 5% in premarket trade.

The difference between a bank’s earnings on loans and its deposit payments, or net interest income (NII), decreased by 9% to $11.92 billion. Based on LSEG data, analysts had projected $12.12 billion on average.

It maintained on Friday that the NII may decline by 7% to 9% this year.

“At this point in the year, we expect that to be in the upper half of that range, or approximately down 8% to 9%,” Wells Fargo’s finance chief, Michael Santomassimo, told reporters on an earnings call.

As part of the investor “bull thesis” heading into the quarter, higher net interest income was anticipated by analysts, so the management’s revised guidance of NII is expected to put pressure on the stock, according to Citigroup analyst Keith Horowitz in a note.

According to the bank, average deposit costs increased from 1.13% a year earlier to 1.84% in the second quarter.

Banks are having to pay more to retain customers who are hunting for greater yields while also dealing with the fallout of higher-for-longer interest rates as borrowers balk at taking out new loans.

“Rate expectations continue to change… We’ll hopefully have to see how that plays out and how that translates into action,” Santomassimo said.

For the three months that ended on June 30, net income decreased to $4.91 billion from $4.94 billion in the same period last year.

Additionally, the lender stated that it has increased its estimate of noninterest expenditure from $52.6 billion to around $54 billion for 2024.

However, Wells Fargo’s second-quarter earnings exceeded forecasts because to an increase in investment banking fees.

In terms of earnings per share, the business declared $1.33, whereas LSEG projected $1.29.

The net charge-offs, or the amount of loans that are unlikely to be recovered, for commercial real estate (CRE) came in at $271 million, or 74 basis points of average loans, according to the fourth-largest U.S. bank. The office segment was the main driver of these charges.

As the problems facing the sector worsened over the last year, the bank made an effort to lower its exposure to CRE. Executives have stated that the CRE portfolios remain manageable, despite the fact that it had increased provisions to cover future defaults, notably in the office area.

One area where the bank performed well in the second quarter was investment banking. A 25% increase in second-quarter earnings was also announced by rival JPMorgan Chase on Friday, helped in part by growing investment banking fees.

A 60% increase in investment banking revenue in the second quarter helped to increase Citigroup’s earnings.

Charlie Scharf, the CEO of Wells Fargo, stated in a statement, “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income.”

The bank’s revenue from investment banking increased by 38% to $430 million.

Wells Fargo has strengthened its trading and investment banking operations under Scharf, hiring a few senior executives from competitors.

According to Dealogic statistics, the worldwide volume of mergers and acquisitions reached $1.6 trillion in the first half of the year, a 20% increase over the previous year. Volumes on the equity capital market increased by 10% in the same time frame.

Nevertheless, Wells Fargo is still constrained by a $1.95 trillion asset ceiling, which stops bank from expanding until regulators conclude it has resolved issues arising from the crisis involving phoney accounts.

The U.S. Office of the Comptroller of the Currency cancelled a 2016 punishment in February, but the bank still has eight pending consent orders.

(Adapted from USNews.com)