Wells Fargo & Co

This is our first report on one of the American banking majors, Wells Fargo. The company performed well in the quarter despite operating losses and managed an all-around beat. Increasing interest rates fueled a rapid rise in net interest income. Its continuing progress and efficiency initiatives contributed to lower expenses, excluding operational losses. Loans increased in their commercial and consumer portfolios. Charge-offs have also increased, but credit quality has remained good. Wells Fargo’s capital levels have also stayed quite high. In addition, their CET1 ratio rose to 10.6. The bank is also making strides toward resolving legacy concerns. The broad agreement with the CFPB was a significant step forward in resolving several issues, the majority of which had been pending for several years. Nonperforming assets increased by 1% from the previous quarter, with reduced residential mortgage nonaccrual loans more than offsetting higher commercial real estate nonaccrual loans. Looking ahead, they expect net interest income to continue to rise. At the same time, costs, excluding operating losses, are likely to remain broadly steady even after inflation and further investments in their businesses to drive growth. We initiate coverage on the stock of Wells Fargo & Co with a ‘Hold’ rating.