Wells Fargo & Company (WFC Quick QuoteWFC - Free Report) is slated to report third-quarter 2024 earnings on Oct. 11, before market open. The bank’s earnings and revenues in the to-be-reported quarter are expected to have declined from the year-ago reported figures. 

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In the last reported quarter, WFC’s earnings beat the Zacks Consensus Estimate on higher non-interest income. An improvement in capital ratios and a decline in provisions were other positives. 

WFC has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average earnings surprise of 10.42%.
 

Let’s look at factors that are expected to have influenced Wells Fargo’s third-quarter performance.

Loans and Net Interest Income (NII):  On Sept.18, the Federal Reserve cut the interest rates by 50 basis points to 4.75-5% for the first time since March 2020. Nonetheless, the development is not expected to have much impact on Wells Fargo’s NII during the third quarter. 

Further, relatively higher rates might have hurt NII growth prospects because of elevated funding/deposit costs and an inverted yield curve during the major part of the quarter. 

Yet, clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial and consumer loans was modest in the first two months of the quarter.

The Zacks Consensus Estimate for NII is pegged at $11.87 billion, indicating a marginal decline on a sequential basis.

Non-interest Revenues:  As the central bank lowered the rates, mortgage rates started to come down. The rates declined to almost 6.2% by the end of the third quarter. This resulted in a surge in refinancing activities while origination volumes remained subdued.  

Thus, mortgage banking fees are likely to have witnessed some improvement at WFC, while a record last year's performance is expected to make comparison challenging. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $254.3 million, suggesting a 4.7% rise from the previous quarter’s levels.

The company’s investment advisory and other asset-based fee revenues are likely to have improved from higher market valuations and transactional activities. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.46 billion, indicating a sequential rise of 1.9%.

Global mergers and acquisitions in the third quarter of 2024 showed improvement after subdued 2023 and 2022. This is expected to have supported WFC’s IB fees. Both deal value and volume were decent during the quarter, driven by solid financial performance, higher chances of a soft landing of the U.S. economy, buoyant markets and interest rate cuts.  Yet, tough scrutiny by antitrust regulators and lingering geopolitical issues were headwinds. 

The Zacks Consensus Estimate for IB income is pegged at $638.73 million, indicating a marginal decline from the prior year’s reported figure.
The company is likely to have witnessed a rise in its card fees, given the increased consumer spending. The Zacks Consensus Estimate for Card fees’ is pegged at $1.12 billion, suggesting an increase of 1.4% on a sequential basis.

The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $8.42 billion, indicating a 4% fall sequentially.

Expenses: Wells Fargo’s costs are expected to have continued flaring up during the third quarter, given its franchise investments in technology and digitalization efforts. This is likely to have hindered bottom-line growth in the quarter under review.

Asset Quality: Wells Fargo is likely to have set aside a huge amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of an economic slowdown. 

The consensus mark for total non-accrual loans is pegged at $8.68 billion, suggesting a sequential rise of 2.9%. The Zacks Consensus Estimate for non-performing assets of $8.84 billion indicates a 2.2% increase from the previous quarter.

What Our Model Predicts for WFC

According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the combination of two key ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Wells Fargo is -2.39%.

Zacks Rank: WFC currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate for third-quarter earnings has remained unchanged in the past seven days at $1.27 per share. It suggests a year-over-year decline of 8.63%.

The consensus estimate for quarterly revenues of $20.38 billion indicates a 2.9% decline from the prior-year quarter’s reported figure. 

Stocks That Warrant a Look

Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post earnings beat this time around:

The Earnings ESP for Citizens Financial Group, Inc. (CFG Quick QuoteCFG - Free Report) is +3.12% and it carries a Zacks Rank #3 at present. The company is slated to report its third-quarter 2024 results on Oct. 16. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past seven days, the Zacks Consensus Estimate for CFG’s quarterly earnings has moved 1.3% north.

First Horizon Corporation (FHN Quick QuoteFHN - Free Report) has an Earnings ESP of +3.18% and carries a Zacks Rank #3 at present. The company is scheduled to release its third-quarter 2024 earnings on Oct. 16.  

FHN’s quarterly earnings estimates have been unchanged over the past 60 days.