Wells Fargo & Company (WFC.US) Q1 cost controls and credit loss provisions better than expected, weak loan demand under the shadow of tariff clouds.

Before the opening of the US stock market on April 11, the Wall Street commercial banking giant Wells Fargo & Company (WFC.US) released its first quarter performance for 2025. The financial report data shows that the bank successfully controlled overall expenses in the first quarter, and despite facing heavy pressure from tariffs and long-standing regulatory issues, credit loss reserves were lower than Wall Street analysts' expectations. However, due to tariff uncertainties affecting the US economic outlook, loan demand has weakened. The financial report data shows that Wells Fargo & Company's Q1 non-interest expenses decreased by 3.1% year-on-year to $13.9 billion, surpassing market expectations, mainly due to the bank's CEO Charlie Scharf continuing to push forward cost-cutting plans. However, the bank's net interest income (NII), which is the difference between loan revenue and deposit costs, was approximately $11.5 billion, lower than the $11.8 billion generally expected by Wall Street analysts. Wells Fargo & Company maintains its full-year performance guidance unchanged, still expecting net interest income to grow by 1% to 3%. Like other large commercial banks, Wells Fargo & Company's stock price plummeted last week, then rebounded slightly after US President Trump announced a delay in implementing comprehensive tariffs globally. Due to frequent policy changes, analysts and CEOs are still struggling to predict the impact of tariffs on the earnings prospects of US stock companies. "We support the government's willingness to review US fair trade barriers, but such significant actions will inevitably come with great market risks," Scharf stated in the performance declaration. "If a timely solution favorable to the US economy can be reached, it will benefit American businesses, consumers, and the market." Wells Fargo & Company's total credit loss reserves in the first quarter were only $9.32 billion, lower than the $12.2 billion generally expected by Wall Street analysts, partly due to a significant decrease in net write-offs, easing market concerns about the financial performance prospects of Wall Street financial giants. In pre-market trading on the New York Stock Exchange, driven by strong credit loss reserve data, Wells Fargo & Company's stock price rose by 2.1% to $64.44. Wells Fargo & Company's first quarter non-interest income remained flat at $8.65 billion, lower than the $8.93 billion expected by Wall Street analysts. The bank is actively seeking new fee income sources by expanding its commercial business range on Wall Street. Wells Fargo & Company's Q1 investment banking expenses increased significantly by 24% to $775 million, mainly driven by increased debt capital market financing activities. The banking industry had hoped for a rebound in mergers and acquisitions to boost advisory-type fees, but this expectation has largely fallen flat due to the volatility in financial markets this year. Wells Fargo & Company, along with JPMorgan Chase (JPM.US) and Morgan Stanley (MS.US), has kicked off the US large bank reporting season and the first quarter US stock earnings season, with the latter two companies also releasing their first quarter performance on Friday. Goldman Sachs Group, Inc. (GS.US), Bank of America Corp (BAC.US), and Citigroup (C.US) and other Wall Street peers will release their financial reports next week. Despite Trump granting a 90-day reprieve on tariffs for most countries, the market is still concerned that inflation and potential economic downturn could dampen US consumer and corporate spending, deteriorate credit quality, and hinder transactions, posing a significant threat to Bank of America Corp. As the fourth-largest bank in the US, Wells Fargo & Company is still limited by the Federal Reserve's asset cap, with its balance sheet not allowed to exceed the level at the end of 2017. According to Bloomberg News last September, Wells Fargo & Company had submitted a third-party evaluation report on its reform measures for Federal Reserve review and approval. In just the first quarter, Wells Fargo & Company resolved five US regulatory mandates related to the bank's historical scandals such as auto and housing loans. Since Scharf took office in 2019, compliance and risk management have become the bank's top priorities. As Wells Fargo & Company gradually resolves its historical regulatory issues, the bank is paving the way for accelerated growth in the future. Industry analysts cited by Bloomberg generally believe that the complete termination of all regulatory mandates will mean the imminent removal of the asset cap penalty. Before the Wall Street financial giants announced their first quarter earnings on Friday, analysts at Morgan Stanley took a cautious stance. Morgan Stanley downgraded its stock ratings for the US investment banking giant Goldman Sachs Group, Inc., as well as the leading private bank and wealth manager Northern Trust Corporation (NTRS.US), with the latter being downgraded to "underweight," while Morgan Stanley upgraded the stock rating for the US commercial banking giant Bank of America Corp. More importantly, Morgan Stanley downgraded the overall outlook for the US large bank sector from "attractive for investment" to "neutral," signaling another major negative impact on Bank of America Corp and other industry giants as a result of Trump's continued use of tariffs in the upcoming earnings season. "With Trump's tariffs policy far exceeding market expectations, we expect a slowdown in US economic growth combined with increasing economic uncertainty to significantly delay the initial signs of recovery in the US capital markets and gradually slow loan growth."And the net write-off rates for consumer and commercial loans are slightly higher than our previous average cycle levels, reflecting current estimates of unemployment," Morgan Stanley said in a research report."Considering the recent significant market volatility, the revenue prospects for investment banking and wealth management fees clearly need to be significantly lowered. The median year-on-year revenue growth rate we forecast for 2025 has been reduced from 4% to 3%. Therefore, we anticipate that bank management will convey similar information and loan growth guidance will also be slightly adjusted by then." Morgan Stanley added.