Wells Fargo profit jumps on interest income boost, trading windfall

Wells Fargo’s profit jumped 17% in the second quarter as volatile markets kept its trading desks busy, while strong loan growth boosted interest income.

The fourth-largest U.S. lender’s net income was $6.41 billion, or $2.00 per share, in the three months ended June 30, it said on Tuesday. That compares with $5.49 billion, or $1.60 per share, a year earlier.

“Consumer spending is higher, charge-offs and delinquencies are lower, and savings and investments are growing across consumer segments. Businesses are cautious but balance sheets and cash flows remain strong resulting in strong credit performance,” CEO Charlie Scharf said in a statement.

Shares of the San Francisco, California-based bank rose 1.4% in premarket trading. The stock had slipped nearly 6% this year through last close, underperforming peers.

The lifting of the $1.95 trillion asset cap last year drew a line under the bank’s regulatory constraints and freed Wells Fargo to accelerate CEO Charlie Scharf’s growth plans.

The bank has since focused on growing its credit card and auto businesses, while also hiring bankers from rivals in its commercial business to drive growth.

U.S. banks have continued to benefit from re-investing cash from maturing low-yielding assets in their investment securities portfolios to higher-yielding paper over time.

Wells Fargo’s net interest income (NII), the difference between what a bank earns on loans and pays out on deposits, rose 5% to $12.32 billion in the quarter from a year earlier. Average loans jumped 12% from a year earlier.

The bank had expected a “step up” in net interest income in the reported quarter.

Trading business also gained momentum as Wells Fargo deploys more balance sheet to the markets business, which was constrained during the asset-cap era.

The bank’s markets revenue, which includes its trading business, jumped 24% to $2.21 billion in the second quarter.

“Concerns around affordability and inflation exist, but the labor market and wage growth remain strong. We know that such favorable conditions do not go on forever so we are being selective about how much and where to grow.”

The U.S. economy has stayed resilient as higher tax refunds cushioned the impact of elevated energy prices following the conflict in the Middle East. But worries remain around the impact on inflation.