Rising borrowing costs have benefited banks that charged borrowers more on interest, but with market participants expecting rate cuts by the Federal Reserve this year, their interest income could start to erode.
“Our business performance remains sensitive to interest rates and the health of the U.S. economy, but we are confident that the actions we are taking will drive stronger returns over the cycle,” CEO Chief Executive Officer Charlie Scharf said in a statement.
The bank has already tightened its belt and expects annual expenses to drop by $3 billion from 2023. In the fourth quarter, Wells Fargo booked $969 million in severance expense.
CEO Scharf had told investors last month that the bank was likely to see higher-than-anticipated severance expenses – between $750 million to a little less than $1 billion – in the fourth quarter.
Chief Financial Officer Mike Santomassimo said in a conference call on Friday that there is no specific area that should be more impacted by layoffs, without providing a number.
Revenue in the fourth quarter rose 2% to $20.5 billion. Excluding items, Wells Fargo earned $1.26 per share, beating analysts’ expectations of $1.17, according to LSEG estimates.
Non-interest expense dropped 2.5% in the quarter.
Wells Fargo is among a group of banking giants that are required to refill a government insurance fund that was drained of $16 billion after three regional lenders collapsed.
It paid $1.9 billion in special assessment fees to the regulator.
Wells Fargo is still operating under an asset cap that prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal.
The bank has nine open consent orders from regulators mandating additional oversight of its practices.
Rivals JPMorgan Chase and Bank of America posted a drop in fourth-quarter profit, hit by charges to refill the Federal Deposit Insurance Corporation after last year’s banking crisis.
Citigroup posted a loss on a slew of charges.
OFFICE LOANS WEAKNESS
Meanwhile, the bank raised its provisions to $1.28 billion to prepare for souring loans.
Office loans have been a cause for concern. The rise in remote and hybrid work has spurred more vacancies, making it harder for building owners to pay back their loans.
Increases in the provision for credit losses was driven by credit card and commercial real estate (CRE) loans, the bank said.
The allowance also included higher net loan charge-offs for commercial real estate office and credit card loans.
Wells Fargo has in the recent quarters said it has shored up capital to absorb potential losses from commercial real estate.
The bank saw a $284 million increase in CRE net loan charge-offs in the fourth quarter.
