Shares of Wells Fargo (WFC 0.60%) are trading roughly 5.5% lower as of 10:44 a.m. ET today after the bank reported earnings results for the second quarter of the year earlier this morning.
Lowering net interest income guidance
Wells Fargo reported earnings per share of $1.60 on total revenue of roughly $20.8 billion. EPS beat FactSet estimates easily, while revenue came in slightly higher than estimates.
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However, the stock sank after management lowered its full-year guidance for net interest income (NII), which is one of the larger sources of revenue at banks. NII is essentially the difference between the money banks make on interest from loans and other assets and what they pay out in interest on deposits and other funding sources.
Management is guiding for 2025 NII of roughly $47.7 billion, in line with 2024 NII. However, in the first quarter, management guided for 2025 NII to increase 1% to 3% from 2024 levels. The decline is due to lower NII in the bank's markets business, which management says will be offset by higher fee income.
Not too concerned
Wells Fargo had been trading close to a five-year high valuation at just under 2 times tangible book value, a term referring to a bank's net worth, so there was little margin for error. Ultimately, though, I am not overly concerned about lower NII guidance, especially because NII can be volatile and the decline should be offset by higher fee income.
On a positive note, credit metrics improved from the first quarter, so I think investors can buy the dip here due to a favorable backdrop for the large-cap financials.
