Wells Fargo's stock climbs after earnings, as bank prepares for new CEO

Key Points
  • Wells Fargo's profitability slides more as the bank undergoes a restructuring.
  • Wells Fargo reports net income of $4.6 billion in the third quarter, down 23% from a year earlier.
  • Last month, the bank's board of directors named Charles Scharf as CEO and president, beginning on Monday.
Wells Fargo's new CEO is Charles Scharf, CEO of BNY Mellon

Wells Fargo reported third-quarter earnings slightly below expectations but shares rose steadily during trading on Tuesday morning, as investors appeared to welcome the bank's restructuring plan.

Shares of Wells Fargo rose 1.6% to close at $50.11 a share. The stock is up nearly 9% for this year.

"A few small things plus two big picture items are helping the stock," Charlie Smith, CIO of Fort Pitt Capital Group, told CNBC. "The big picture is that Charles Scharf is a great guy for helping with cost cutting ... and the mortgage market is absolutely booming."

Wells Fargo CFO John Shrewsberry on earnings, incoming CEO Charles Scharf

But a key measure of Wells Fargo's profitability slid further this year as the troubled company restructures. The bank reported net income of $4.6 billion in the quarter, down 23% from a year earlier. Wells Fargo's net interest income, a critical part of bank profits, was just below estimates at $11.63 billion. Net interest margin dropped to 2.66%, down from 2.94% for the quarter a year ago.

Here's how the company did, compared with what Wall Street expected:

  • Earnings: $1.07 a share adjusted vs. $1.15 a share expected by analysts surveyed by Refinitiv.
  • Revenue: $22.01 billion vs. 21.19 billion expected by analysts surveyed by Refinitiv.

In total, the lack of any new obstacles for Wells Fargo may be helping drive shareholder optimism.

"So many skeletons have come out of their closet that you would have anticipated a new CEO would say 'let's clean this closet as well as we can.' I can see how the market would take that as a positive," Smith said.

Last month, the bank's board of directors named Charles Scharf as CEO and president. Scharf, formerly the chairman and CEO of BNY Mellon, will take over for Tim Sloan at Wells Fargo on Monday.

The nation's fourth-largest bank, Wells Fargo has been mired in restructuring and regulatory scrutiny since 2016. Under former CEO John Stumpf, Wells Fargo employees had created millions of fake bank accounts to meet sales quotas. With the bank's reputation damaged, Sloan had taken the reins from Stumpf. But Sloan resigned abruptly in March.

Wells Fargo reported a $1.6 billion litigation charge during the third quarter, citing the continued ramifications from the sales scandal.

"We have more work ahead, but I'm confident that our focused efforts and the fundamental strengths of Wells Fargo will continue to enable us to achieve success," Wells Fargo interim CEO Allen Parker said in a statement Tuesday.

In 2018, the Federal Reserve capped Wells Fargo's asset growth under $1.95 trillion, after the bank discovered further problems with how it treated customers. The cap will stay in place through the end of the year, in a rare move the central bank took to push Wells Fargo to fix its risk management problems.

"But the performance of our consumer credit portfolios, the three that I mentioned [mortgage, autos and credit card] and others has really never been better, reflecting the strong consumer," CFO John Shrewsberry said on "Closing Bell."

Wells Fargo's loan balances at the end of September totaled $954.9 billion, up $5 billion from the previous quarter. While the bank reported unchanged commercial loans, consumer loans made up the $5 billion increase, driven by more family real estate mortgages as well as more credit card and auto loans.

– CNBC's Kevin Stankiewicz contributed to this report.

Correction: An earlier version misstated the adjusted third-quarter earnings. The correct amount was $1.07 a share.