Wells Fargo profit beats estimates on trading and IB surge
Wells Fargo beat second-quarter profit estimates as the removal of its regulatory asset cap fueled a sharp rebound in trading and investment banking, though shares fell alongside a broader sector selloff.
Wells Fargo reported a 17% increase in second-quarter net income to $6.41 billion, or $2.00 per share, easily beating analyst expectations of $1.72 per share. Despite the strong results, the bank's shares dropped 1.9% in premarket trading, extending a year-to-date decline of 6%. The decline mirrored broader pressure on the financial sector following JPMorgan Chase's own earnings release.
The earnings beat signals that the lifting of the Federal Reserve's $1.95 trillion asset cap last year is finally translating into top-line growth. Investors had closely monitored net interest income after the cap's removal, as the metric had fallen short in recent quarters while the bank's deposit mix normalized. However, the outperformance this quarter was driven primarily by a sharp rebound in fee-based businesses rather than interest income.
Freed to deploy more balance sheet, the bank's markets revenue jumped 24% to $2.21 billion, powered by a 64% surge in equities trading. Investment banking fees rose 35% to $939 million as companies struck mega deals in a relaxed 2026 regulatory environment under President Donald Trump. The bank climbed to fourth in U.S. M&A volume from eighth a year earlier, advising NextEra on a $67 billion deal, Apollo on $35 billion for Anthropic, and bookrunning SpaceX’s record $86 billion IPO.
The U.S. economy has stayed resilient, cushioned by tax refunds against elevated energy prices following Middle East conflict. "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.
Cost discipline continues to underpin the bank's turnaround strategy. Headcount dropped below 200,000 for the first time, ending June with 197,466 employees, down from 200,999 in March. Executives indicated there is room for further reductions even before factoring in potential productivity gains from artificial intelligence.
