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Wells Fargo’s Non-Interest Income Impacted by Trading, Mortgages

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Net-interest income

Wells Fargo (WFC) has managed higher net interest income in recent quarters on rising rates and marginal credit growth. It posted net interest income of $12.5 billion in 3Q17, flat sequentially but higher than $11.9 billion in 3Q16. On a sequential basis, it saw prepayments and lower average loan balances, partially offset by repricing of select offerings, higher rates, and one additional day in the quarter.

Wells Fargo has lagged behind its peers (XLF), including Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC), in credit expansion. However, it has matched them on higher margins aided by rate hikes. As the Fed gears up for possible rate hikes in 2018 and perhaps one in 4Q17, net interest margins are expected to see strength in the upcoming quarters.

Net interest margins

Wells Fargo saw a decline of 3 basis points in NIM (net interest margins) to 2.87% in 3Q17, compared to 2.9% in 2Q17 and 2.82% in 3Q16. Growth in average deposits, trading assets, and a lower traction in credit resulted in a marginal decline in margins. These were partially offset by repricing of select offerings due to rate hikes.

Non-interest income

Wells Fargo’s non-interest income fell to $9.5 billion compared to $9.7 billion in 2Q17 and $10.4 billion in 3Q16. Sequentially, the decline was largely due to lower mortgage banking, partially covered by strength in market-sensitive revenues.

Non-interest income fell due to a decline in trust and investment income, card fees, other fees, and mortgage banking. Those were partially offset by gains in trading, debt securities, and equity investments. The year-over-year decline was mainly due to a steep fall of 37% in mortgage banking and 41% in gains from trading activity. Trading activity reflects an industry-wide trend due to lower volatility and continued investments in equities.

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