Investment Bank News: Wells Fargo Q2 Markets Revenue Up 24%

SAN FRANCISCO — Wells Fargo & Company reported second-quarter net income of $6.4 billion, or $2.00 per diluted share, on Tuesday, and its corporate and investment banking unit grew revenue 16% from a year earlier. For readers following investment bank news, the results show a bank that spent years restricted from growing its balance sheet now competing for capital markets and trading business.

The figures come from an 8-K filed July 14 that includes the earnings release as Exhibit 99.1. Net income was $6,407 million against $5,494 million a year earlier, and diluted earnings per share rose from $1.60 to $2.00. Total revenue reached $22.6 billion, up 9%.

Banking and markets lines

Corporate and investment banking produced $5,425 million of revenue, up from $4,673 million. Within it, the banking portfolio brought in $2,013 million, 20% more than a year ago, while markets revenue rose 24% to $2,206 million.

Investment banking revenue, one line inside the banking total, was $628 million, up 36% from $463 million and 4% from the first quarter. The release attributes the increase to higher investment banking fees in equity and debt capital markets. Commercial real estate revenue of $1,197 million was down 1%, held back by lower interest rates.

In markets, equities revenue climbed 64% to $635 million, and fixed income, currencies and commodities revenue grew 10% to $1,536 million. Chief executive Charlie Scharf summarized the quarter by noting that banking revenue was up 20% and markets revenue was up 24%.

Balance sheet and capital

Average loans were $1,026.5 billion, 12% above a year ago, and average deposits were $1,465.6 billion. The common equity tier 1 ratio stood at 10.3%, down from 11.1% a year earlier. The bank repurchased 37.4 million shares for $3.0 billion in the quarter and about $7 billion in the first half.

Scharf also said the company expects to raise its third-quarter common dividend by 11% to $0.50 per share, subject to board approval later in July. Return on tangible common equity was 17.7%, compared with 15.2% a year earlier.

Other results

Net interest income was $12.3 billion, up 5%, and noninterest income rose 13% to $10.3 billion. The provision for credit losses fell to $914 million from $1,005 million, and net charge-offs were $883 million compared with $997 million. Commercial Banking earned $1,176 million on revenue of $3,118 million, and client assets in Wealth and Investment Management grew 15% to more than $2.4 trillion.

What Scharf said about growth

Scharf described years of “not being on a level playing field” because the bank could not grow its balance sheet, and said it is now deploying capital carefully to support clients. He added that conditions of high equity prices and narrow credit spreads “do not go on forever,” which is why the bank is being selective about where it grows.

The release flags a $132 million discrete tax benefit, or $0.04 per share, tied to the resolution of prior-period matters. Results are preliminary until the 10-Q is filed.

What to watch

League table rankings for the quarter will show whether a 36% rise in fee revenue lifted Wells Fargo’s share of underwriting and advisory work or simply tracked a strong market. The bank’s dividend decision, finalization of the proposed capital rules Scharf referenced, and the pace of loan growth are the other items to follow into the third quarter.