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How Wells Fargo Is Sitting after Its 2Q17 Results

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Part 3
How Wells Fargo Is Sitting after Its 2Q17 Results PART 3 OF 10

Why Wells Fargo Net Interest Income Is Now Riding High

WFC’s expanding margins

In 1Q17, Wells Fargo (WFC) managed NII (net interest income) of $12.5 billion in 2Q17, compared with $11.7 billion in 2Q16 and $12.3 billion in 1Q17. This rise rode mainly on higher short term rates compared with the cost of repricing liabilities, which resulted in higher net interest margins.

Commercial banking (XLF) peers JPMorgan Chase (JPM), Citi (C), and Bank of America (BAC) have all seen their margins expand as the Fed has raised rates over the past few quarters.

Why Wells Fargo Net Interest Income Is Now Riding High

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Wells Fargo managed higher NIMs (net interest margins) of 2.9% in 2Q17, compared with 2.87% in 1Q17 and 2.86% in 2Q16. The bank commands one of the highest margins in the industry, reflecting its strength in selecting quality credit and arranging funds at lower costs.

WFC’s trading and wealth management

Wells Fargo’s non-interest income stood at $9.69 billion, compared with $9.70 billion in 1Q17 and $10.43 billion in 2Q16. The decline was mainly due to lower deposit service charges, lower mortgage banking, trading gains, and gains from equity investments declining, which were partially offset by higher trust and investment fees, higher card fees, commercial real estate brokerage fees, and other income.

The lower revenues from gains on securities reflect an industry-wide trend that’s relatively weaker for Wells Fargo than it is for other major asset managers. However, WFC has continued to draw higher fees in the trust and investment banking areas due to higher fund raising and strategic transactions.

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