Wells Fargo: Rate Cut Should Ease Pressure on Lower-Income Consumers

Lower inflation and interest rates may give some relief to consumers who need it most, Wells Fargo CEO Charlie Scharf said Friday (Oct. 11).

Speaking during the company’s quarterly earnings call, Scharf said the bank has not seen changes in delinquencies or spending that would signal declining consumer health, but it has seen stress among lower-income consumers.

“We continue to see more pronounced stress in certain customer segments with lower deposit and asset levels where inflation has partially offset strong employment and wage growth,” Scharf said during the call. “The benefits of inflation slowing and interest rates starting to ease should be helpful to all customers, but especially those on the lower end of the income scale.”

During the third quarter, Wells Fargo saw its annualized consumer net loan charge-off rate decrease from the previous quarter’s 0.88% to 0.83%, according to an earnings release issued Friday. The bank attributed the decline to lower net loan charge-offs in its credit card portfolio.

The bank also made a “modest decrease” in its allowance for credit losses during the third quarter, saying in the release that this reflected lower allowances across most loan portfolios.

During Friday’s earnings call, analysts asked about the status of the asset cap imposed on Wells Fargo and the opportunities the bank might see if that cap is lifted.

The asset cap, which limits the bank to its size at the end of 2017, was imposed by the Federal Reserve as punishment for consumer abuses and compliance lapses at Wells Fargo at that time.

It was reported in September that the bank submitted a third-party review of its risk and control overhauls to the Fed as part of its efforts to have the cap removed.

Scharf told the analysts Friday that he couldn’t share specifics about the status of the bank’s efforts to meet regulators’ requirements to lift the cap, but that the bank is working on it.

He added that with the cap in place, Wells Fargo has had to be careful about its assets and liabilities when it comes to wholesale deposits and financing in the markets business, because it wants to be able to serve customers elsewhere.

“So those are the two places where we would probably see the impact immediately,” Scharf said. “Not incredibly significant changes by any stretch of the imagination, but we’ve had to be very careful in those two places. Beyond that, it’s just normal growth opportunities that we would see across all the different parts of the company.”