Banks

Wells Fargo shares roll over after CFO's tepid profit outlook

Key Points
  • CFO John Shrewsberry tells analysts the bank expects net interest income to fall by 2% to 5% in 2019.
  • "Several factors have driven a shift in our view, including a lower absolute rate outlook, a flatter curve, tightening loan spreads resulting from a competitive market with ample liquidity, and continued upward pressure on deposit pricing," he says.
VIDEO3:4003:40
Watch a bank and equity strategist break down the Wells Fargo earnings beat

Wells Fargo shares traded 3.1% lower Friday, giving up earlier gains, as a weak profit outlook overshadowed stronger-than-expected quarterly earnings.

CFO John Shrewsberry told analysts in a call that the bank expects net interest income to fall by 2% to 5% in 2019. The bank previously expected growth to range from negative 2% to positive 2%.

"Several factors have driven a shift in our view, including a lower absolute rate outlook, a flatter curve, tightening loan spreads resulting from a competitive market with ample liquidity, and continued upward pressure on deposit pricing," he said in the call.

Earlier Friday, Wells Fargo shares had risen as much as 2.3% after the company reported strong earnings on the back of strong consumer transactions and a pick-up in auto loans.

Here's how the company's results compared with expectations in a Refinitiv survey of Wall Street analysts:

  • Earnings: $1.20 per share vs $1.09 per share expected
  • Revenue: $21.609 billion vs $21.012 billion forecast

Wells Fargo said credit card transactions totaled $18.3 billion in the quarter, up 5% from a year earlier, while debit card purchases increased by 6% to $86.6 billion. Auto loans surged 24% to $5.4 billion.

The bank also said it returned $6 billion to shareholders in the quarter through dividend payments and buybacks. It increased its quarterly dividend to 45 cents per share, up from 43 cents in the fourth quarter of 2018.

VIDEO4:3704:37
Five experts on the bank stocks to watch during earnings season

Wells' deposits fell less than expected, totaling $1.3 trillion. Loans came in at $950.1 billion, roughly in line with expectations.

However, not all of Wells Fargo's numbers were positive.

Wells Fargo's nonperforming assets totaled $7.3 billion, well above a $6.67 billion estimate from StreetAccount. The bank's efficiency ratio was also higher than forecast, coming in at 64.4% for the quarter. A higher efficiency ratio indicates a bank is spending more money than it is making.

The company's report follows the departure of CEO Tim Sloan on March 28. Sloan worked at Wells for 31 years. Allen Parker, Wells Fargo's general counsel, took over as the company's interim CEO.

"We have more work ahead of us," Parker said in a statement Friday. The company's efforts "are focused on creating a first-rate organization that is characterized by a strong financial foundation, a leading presence in our chosen markets, focused growth within a responsible risk management framework, operational excellence, and highly engaged team members."

Sloan's departure took many by surprise because he was awarded a raise for his work in 2018. Sloan replaced John Stumpf as CEO in 2016 in the wake of a scandal in which employees created millions of fake accounts to meet sales quotas. That news also exposed flaws across the bank's other businesses.

Sloan also had told CNBC that he, along with the Wells Fargo board and all of the company's employees, thought he was doing a great job.

Wells Fargo shares have underperformed their competitors this year. The stock is up about 4% in 2019, while Bank of America and J.P. Morgan Chase are up more than 18% and 9%, respectively.

J.P. Morgan also reported first-quarter earnings on Friday. It showed record profits and revenue.

Subscribe to CNBC on YouTube.