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Earlier this morning, JPMorgan hinted at the pain that banks will soon suffer as a result of sharply lower interest rates, when it cuts its Net Interest Income forecast by $500MM to $79.5 billion, sending its stock lower. However, it was Wells Fargo, America's former mortgage powerhouse, that showed just how ugly the hit to bank net interest income would be, or rather already is, as long-term rates continue to slide.
Wells Reported Q2 EPS of $1.30, beating expectations of $1.15, on revenue of $21.6BN, up 0.1% Y/Y also above the $20.93BN expected.
Revenue - Components - Noninterest - Income - Course
This revenue was made up of the two traditional components: Noninterest Income and, of course, Net Interest Income. Looking at the former first, revealed no major surprises: Noninterest income up $191 million to $1.206 billion due to the following:
Mortgage banking up $50 million: i) Servicing income down $87 million due to the impact of lower interest rates including higher loan payoffs; ii) Net gains on mortgage loan originations up $137 million on higher origination volumes reflecting seasonality, as well as lower mortgage loan interest rates;
Things - Wells - Interest - Income - Category
Things were much different in Wells' other, traditionally greater and far more important, Net Interest Income category, which tumbled to $12.095 billion down $446 million, or 4%, YoY, and $216 million, or 2%, LQ. According to the bank, the decline was due to:
But the punchline was the following: NIM down 9 bps to 2.82% - the lowest in years - "reflecting balance sheet mix and repricing including the impact of higher deposit costs and a lower interest rate environment, as well as higher MBS premium amortization on higher prepayments."
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