Latest news with #Scharf
CNBC
5 days ago
- Business
- CNBC
We're upgrading Wells Fargo stock despite its earnings-driven decline
Wells Fargo reported better-than-expected second-quarter results before Tuesday's opening bell. However, the stock was under pressure after management reduced guidance on a key banking metric. Total revenue for the three months ending June 30 increased 0.6% year over year to $20.8 billion, beating analysts' expectations of $20.77 billion, according to market data provider LSEG. Adjusted earnings per share of $1.54 per share exceeded Wall Street's consensus estimate of $1.41 per share, LSEG data showed. EPS excludes a 6-cent per share gain associated with the company's acquisition of the remaining interest in its merchant services joint venture. WFC YTD mountain Wells Fargo YTD Lofty expectations may have also contributed to Tuesday's drop in Wells Fargo shares. Before the earnings announcement, Wells Fargo shares were up nearly 19% year to date and more than 35% from their post-Liberation Day lows. The financials came into earnings season hot thanks to deregulation tailwinds and a successful round of bank stress tests, leaving Wells shares vulnerable to some profit-taking. With shares down more than 6% on the session, we view the weakness as a buying opportunity. We're upgrading Wells Fargo stock to our 1 rating and reiterating our $90 price target. Bottom line Wells Fargo reported a solid quarter with strong fee growth and muted expense growth, leading to a 15.2% Return on Tangible Common Equity. However, two factors are creating some disappointment. First was the quarterly miss on net interest income and the cut to its full-year NII outlook. The headlines will say this is a bad thing, but Wells Fargo is deliberately prioritizing its balance sheet to focus more on its market business to support stronger client activity in products like commodities and bonds. What it will lose in NII should be made up for in non-interest income. Still, this change caught investors off guard. With the Federal Reserve asset cap finally gone, investors were hoping for better results. Keep in mind, CEO Charlie Scharf has transformed the bank over the past few years to make it less hostage to the bond market yield curve. He wants Wells Fargo to make the most money possible durably, and if that means sacrificing some NII in the short run, then so be it. "We're not focused on maximizing net interest income. We're focused on maximizing returns, how much money we make overall. And so we'll try and do as good a job as we can going forward, giving some more clarity on how we intend to use that balance sheet, how it can affect the different pieces," Scharf explained on the earnings call. We don't think the balance sheet shift is a bad thing, since Wells Fargo is giving up some interest-rate-based revenue streams in favor of more fee growth, which we think is the better bet over the long run. A second disappointment may be related to the lack of significant balance sheet growth Wells Fargo expects for the rest of the year. But anyone expecting a growth explosion immediately after the cap was lifted hasn't been listening to what the company has said. Scharf repeatedly said that when the asset cap is lifted, it won't be like a "light switch" that goes off. "We never wanted to lead people to believe that there'd be any major change in the next week, the next month, the next quarter. But it certainly does open options for us to grow and increase returns beyond what we've seen in the past," Scharf explained on the call. The way we see it, Scharf isn't managing the bank on a quarter-to-quarter basis to make its NII numbers. He's doing what's best for the long run – strategically expanding the balance sheet and investing organically to generate the highest return for shareholders. With shares down more than 6% on the session, we think this weakness is an opportunity. We are upgrading Wells Fargo stock to our 1 rating and reiterating our $90 price target. Commentary Second quarter net interest income declined about 2% from last year to $11.7 billion, missing expectations of $11.9 billion. The bank's net interest margin, which measures the difference in what the bank receives in interest on loans and pays out on deposits, was 2.68%, below estimates of 2.71%. The bank cited the impact of lower interest rates on floating rate assets and the impact of deposit mix changes as reasons for the decline from last year. Wells Fargo's period-end loans were up about 1% from last year and 1% from the first quarter of 2025. On a sequential basis, commercial loans increased 2% while consumer loans were flat. Total deposits were down about 2% from both the first quarter of 2025 and the second quarter of 2024. Non-interest income increased 5% year over year to $9.11 billion, beating the Q2 consensus estimate of $8.85 billion. Even when backing out a $253 million gain on a merchant services joint venture acquisition, non-interest income still beat. Compared to last year, investment advisory fees and brokerage commissions increased 4%; investment banking fees grew 9%; card fees were up 7%; and net gains from trading activities were down 12%. Non-interest expense increased less than 1% year over year at $13.38 billion, slightly better than the consensus estimate of $13.42 billion. The increase from last year was due to increases in both personnel and non-personnel expenses. The higher personnel expense was driven by higher revenue-related compensation in wealth and investment management, while non-personnel expenses were due to increases in technology and equipment expense as well as higher advertising and promotion expenses. Still, Wells Fargo remains committed to becoming more efficient. It has reduced headcount for 20 consecutive quarters. Why we own it We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. And, he has delivered. His tireless efforts to clean up the bank's act after a series of misdeeds before his tenure paid off in the Federal Reserve finally lifting its 2018-imposed $1.95 trillion asset cap in early June. Competitors : Bank of America and Citigroup Weight in Club portfolio : 4.3% Most recent buy : Aug. 7, 2024 Initiated : Jan. 8, 2021 Wells Fargo also repurchased 43.9 million shares or $3 billion worth of stock in the quarter, bringing its share count down 5% from a year ago. That works out to an average price of $68.34, which is a great outcome with shares trading at around $79. Provisions for credit losses were about $1 billion, which was lower than the $1.18 billion expected. The bank's allowance for credit losses for loans was up slightly from the first quarter but down from $1.23 billion in the second quarter last year. 2025 guidance Wells Fargo now expects net interest income to be roughly in line with 2024 NII of $47.7 billion. This flattish year-over-year outlook was a cut versus prior guidance of about 1% growth and about $325 million below the consensus estimate of $48.02 billion. What changed between the company's prior guidance to now was lower NII in its markets business, which is being largely offset by higher non-interest income. Basically, as alluded to earlier, Wells Fargo is dedicating more of its balance sheet toward supporting its fee-based market business, which does not earn interest. So, the cost of funding this shift will result in lower net interest income, while most of the revenue will be recognized in non-interest income. On the expense side, Wells Fargo reaffirmed its expectation of non-interest expense of $54.2 billion. (Jim Cramer's Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
CNBC
5 days ago
- Business
- CNBC
Wells Fargo profit rises on lower bad loan provisions
Wells Fargo's profit rose in the second quarter as it set aside less money to shield for potential bad loans. Shares of the San Francisco, California-based bank fell 2.7% in premarket trading as the lender cut its expectation for annual interest income. Wells Fargo expects its interest income to be roughly in line with 2024 level of $47.7 billion, it said. In April, the bank had forecast net interest income growth would be at the low end of the 1% to 3% range. Analysts and investors were skeptical about Wells Fargo's ability to meet its targets for interest income after a slow start to 2025. The bank had expected its net interest income (NII), or the difference between what it earns on loans and pays out on deposits, to be relatively stable in the first half of 2025, with more growth in the second half. Heading into the results, some analysts had expected the bank to cut its NII forecast as elevated interest rates weighed on demand from borrowers. Meanwhile, provision for credit losses fell to $1.01 billion in the quarter from $1.24 billion a year ago. Consumers and businesses have continued to repay loans, allaying concerns that shifting U.S. trade policies would trigger a recession. Still, uncertainty around the economic outlook persists. Wells Fargo executives have previously said their efforts to tighten credit over the past couple of years should help the bank to weather a potential economic downturn. The fourth-largest U.S. lender's net income was $5.49 billion, or $1.60 a share, in the three months ended June 30, it said on Tuesday. That compares with $4.91 billion, or $1.33 a share, a year earlier. Last month, the U.S. Federal Reserve lifted Wells Fargo's seven-year-long $1.95 trillion asset cap, allowing the bank to pursue unimpeded growth. Wells Fargo has been focused on fixing its regulatory problems in recent years. While it labored under a $1.95 trillion cap asset cap, rivals expanded. With the asset cap lifted and regulatory issues largely in the rearview mirror, Wall Street analysts expect Wells Fargo to attract more investor interest as its profits grow. Scharf has said the bank will expand carefully. Wells Fargo is likely to beef up its wholesale businesses by adding market share in commercial banking, corporate and investment banking and trading. The bank has closed seven regulatory punishments, known as consent orders, this year and 13 since 2019. It still has one remaining consent order from 2018.
Axios
11-07-2025
- Business
- Axios
Trump deputies take over powerful D.C. planning commission
Loyalists of President Trump are using an obscure D.C. architecture commission to go after political foe Jerome Powell over the renovation of the Federal Reserve building. Why it matters: The National Capital Planning Commission casts make-or-break votes on construction projects in key parts of the city and serves as tastemaker for design across the Washington region (see: the upcoming RFK Stadium redevelopment). But in a twist, its three new presidentially-appointed members — all White House officials — are using it to needle Powell, claiming the Fed chair is mismanaging a costly rehab of the Fed's headquarters on Constitution Avenue, perhaps as pretext to fire him for not lowering interest rates. Driving the news: The board's new chairman is Will Scharf, the White House staff secretary, also known as the man on TV who hands Trump executive orders to sign. Michael Blair and Stuart Levenbach, also White House officials, were named to represent Virginia and Maryland, respectively. Trump's new appointments surprised local observers who, while expecting turnover, assumed its members would have more robust résumés in architecture and design. Scharf is Trump's former personal lawyer. And now he'll be making sure the Capital One Arena's new digital billboards will be mounted flush with its metal façade — the level of aesthetic detail this local commission spends its days deliberating. In his introductory comments to NCPC Scharf said he previously served under Missouri's governor, in which "capacity I worked extensively on economic development, tax credit issues and related permitting and planning issues, which I guess is my most relevant experience for the purposes of this commission." Friction point: Before turning to matters such as the redevelopment of Poplar Point at their Thursday meeting, Scharf claimed the Fed's renovation project has made "serious deviations" from plans approved by the commission in 2021. It looks like a "Taj Mahal near the National Mall," Blair threw out. Powell denied to senators last month the plans were ostentatious — "no VIP dining room ... no beehives," he said. Which only spawned a new attack: the Fed has violated the National Capital Planning Act by not following the approved blueprint.
Yahoo
06-06-2025
- Business
- Yahoo
Unshackled Wells Fargo Fights to Regain Momentum Lost in Penalty Box
Wells Fargo shares rose over 2% early Wednesday, hitting a three-month high, after the Federal Reserve lifted an asset cap imposed following regulators' determination that the bank had exploited its own customers. The stock, a little hot out of the gate, spent the rest of the day ticking downward and, by the time the closing bell rang, had fallen 0.3% for the day. While a banking juggernaut may have been unshackled to pursue a determined growth strategy, some Wall Street observers think its ambitions are already priced in. READ ALSO: Tariffs Deliver Record Drop in US Trade Deficit and Circle Spirals Upward in $1 Billion IPO There was a period in the late 2010s when Wells Fargo tallied up more scandals than the National Enquirer, the most notorious being when its employees juiced sales numbers by setting up millions of fake deposit and credit card accounts in customers' names without their consent. US regulators got so fed up that they imposed a $1.95 trillion asset cap in 2018, ordering the lender to keep its balance sheet frozen at 2017 levels. Obviously, that left the lender — which Bloomberg estimates lost out on $39 billion in profits under the cap — hamstrung for seven years in the face of fierce competition. From the end of 2017 to March of this year, JPMorgan Chase's assets grew from $2.5 trillion to $4.3 trillion, while Bank of America's rose from $2.3 trillion to $3.3 trillion. Now, Wells Fargo is free to pursue growth, which post-scandal CEO Charlie Scharf has been plotting for years: Once home to the largest US mortgage operation, Wells Fargo has retreated from the multi-trillion-dollar sector under Scharf, who has sold the bank's asset management business, corporate trust division, student loan portfolio, rail equipment leasing unit, and most recently, the bulk of its commercial mortgage-servicing unit. What he's positioned for expansion are trading and investment banking, which were handcuffed by the cap. Wells Fargo has added over four dozen senior bankers since 2020 and scored a major coup last year when Scharf convinced the departing head of JPMorgan's North American investment banking, Fernando Rivas, to run the San Francisco-based lender's corporate and investment bank. Early results are promising: Investment banking fees grew 62%, investment advisory fees 13%, and trading revenues 10% in 2024 — though Wells' operations are a fraction of the size of JPMorgan's. Taking Stock: Apart from the muted performance on Wednesday, Wells Fargo shares have climbed 7.3% in 2025, outperforming the 4.3% gain by the S&P 500 Banks Index. But that explains why some investors are cautious. HSBC analysts noted in a report that 'markets have been increasingly pricing in the asset cap removal, possibly limiting near-term upside.' Shares are already up 28% in the past year. JPMorgan analysts, for example, kept their $73.50 price target after the news of the cap removal. But others on Wall Street are betting Wells Fargo will muscle its way higher as it beefs up investment banking operations: Bank of America hiked its target to $90 a share from $83 after the asset cap's removal, and Morgan Stanley raised its target to $87 from $77. This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
05-06-2025
- Yahoo
Orthodox Jewish family claims video led to unfair suspension by Boca property association
A family is accusing their property association in Boca Raton of unfairly punishing them because they are members of the development's growing Orthodox Jewish community. The civil-rights lawsuit, filed last week in U.S. District Court in West Palm Beach, says that the Boca Grove Property Owners Association suspended the family's rights to use the development's facilities for 90 days after blaming the father for release of a video that showed a traditional Jewish prayer ritual. The ritual, known as 'wrapping tefillin,' was characterized in a complaint filed by the association as 'outrageous religious conduct,' according to the lawsuit. Issac Scharf said he was singled out for punishment because he invited a social media influencer, Jake Adams, to play the country club's golf course and release a comedic video of the events in December 2024, according to the lawsuit. The video included a scene in which Adams performed the ritual with Scharf's help, the suit states. Woman sues real estate firm that she says ignored her sexual assault report in Florida Smokey Robinson sues former housekeepers for defamation over rape allegations The association's manager did not respond to the South Florida Sun Sentinel's request for comment. The court docket does not yet list an attorney representing the association in the matter. Scharf is seeking $50 million, claiming that the suspension violated the Fair Housing Act and traumatized members of his family. While the suspension was at first levied against only him, the development later extended it to his wife and five children, the suit states. Adams frequently posts videos of his visits to various country club golf courses and making light jokes aimed at the Jewish community, the suit states. Tefillin, according to the website 'consists of two black boxes provided with leather straps to hold them into place wrapped around the arm, hand, and head.' Each of the boxes contains pieces of parchment with passages of the Torah. One is placed on the arm and the other on the head. Straps are used to bind the boxes — 'effectively binding our hearts and our minds to God,' the website says. Scharf's lawsuit states that members of the association's governing board became angry when they saw the video and initiated disciplinary proceedings against Scharf, saying it 'contained references to religious practices that have been deemed offensive to a reasonable person.' Scharf claimed in the suit that the suspension was part of a series of actions by the association meant to dissuade Orthodox families from settling in the upscale country club development. Other actions include obstructing a golf course path that Orthodox residents used to walk to a nearby synagogue on Saturdays and religious holidays and campaigning against efforts to create kosher food services in the development, the suit claims. 'This wasn't about enforcing a policy. It was about sending a message to Orthodox Jews that they're not welcome,' said the Scharfs' attorney, Jacob Roth of Dhillon Law Group. Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071 or by email at rhurtibise@
