Wells Fargo Stock Sinks as Q2 Net Interest Income Drags

Wells Fargo (WFC) shares sank Friday after the lender reported a slump in second-quarter net interest income that offset higher-than-forecast results.

Net interest income (NII), a key measure of lending profitability, fell 9% year-over-year to $11.9 billion for the three months ended June 30.

Competition for borrowers as depositors seek higher interest rates has taken a toll on the banking sector’s NII, which measures loans revenue minus what banks pay for deposits and funds. Banks like Wells Fargo, which are more focused on consumer banking, have been especially hurt by declines in NII.

The slump in net interest income overshadowed results that beat Wall Street analysts’ estimates. Well Fargo reported earnings per share (EPS) of $1.33 on revenue of $20.7 billion, beating analysts’ estimates compiled by Visible Alpha of $1.28 and $20.3 billion, respectively.

Wells Sees Some Investment Banking Benefits

Wells Fargo Chief Executive Officer (CEO) Charlie Scharf said that the Main Street-focused bank’s expansion in investment banking was bearing fruit. The S&P 500’s 4% second-quarter gain, with indexes at record levels, has been a boon for more Wall Street-focused lenders like JPMorgan Chase (JPM), which posted higher-than-forecast results Friday.

“We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Scharf said. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees.”

Wells Fargo shares sank more than 6% to $56.46 as of 9:45 a.m. ET Friday. The San Francisco-based lender’s shares are up 14% this year.