Wells Fargo, after the removal of the asset cap, failed to welcome a performance booster as net interest income was downgraded

According to the Zhitong Finance APP, after enduring another quarter of moderate growth amid the ongoing trade war, Wall Street banking giant Wells Fargo (WFC.US) unexpectedly lowered its full-year net interest income (NII) guidance. The San Francisco-based commercial bank recorded an NII of $11.7 billion for the three months ending in June, slightly below the $11.8 billion widely expected by Wall Street analysts. Due to a decline in the bank's market business NII, Wells Fargo has adjusted its full-year NII growth target to be roughly flat compared to last year, down from the previous expected growth range of 1% to 3%.

Investors have been closely monitoring this performance guidance, as tariffs led by U.S. President Donald Trump have cast a shadow over the U.S. economic outlook. In the first quarter of this year, Wells Fargo's NII fell 6% year-over-year, raising questions about its ability to meet its initially set targets.

Nevertheless, Wells Fargo's credit quality remains robust, with net charge-offs down 23% year-over-year. The allowance for credit losses stands at $1 billion, but below the $1.16 billion estimated by analysts.

In early trading in New York, Wells Fargo's stock price fell nearly 3% in pre-market trading on Tuesday due to the unexpected lowering of its full-year net interest income (NII) guidance.

Along with JPMorgan Chase & Co. and Citigroup Inc., Wells Fargo and other Wall Street financial giants have kicked off the earnings season for large U.S. banks; Goldman Sachs Group Inc., Bank of America Corp., and Morgan Stanley are scheduled to announce their results on Wednesday Eastern Time.

Although the outcome of tariff negotiations between the Trump administration and the world's largest trading partners remains uncertain, the stock market has already bet on a successful "soft landing" for the U.S. economy and the deregulation momentum led by the Trump administration.

Since the beginning of this year, driven by the resilience of the U.S. economy, coupled with the significant positive expectation of the Federal Reserve easing regulatory standards for U.S. banks, and the catalyst of the Federal Reserve announcing that all large banks passed the annual stress tests and increased dividends, the U.S. financial sector has surged, with the KBW Bank Index, covering 24 constituent stocks, rising to and maintaining near a high of 2025 this month.

As the second-quarter earnings announcement approaches, Wells Fargo has just achieved a significant victory, confirming CEO Charlie Scharf's efforts to reshape this scandal-plagued banking giant over the years. In June, the Federal Reserve lifted an unprecedented regulatory penalty that had restricted the nation's fourth-largest commercial bank's asset size from exceeding $1.95 trillion since the end of 2017.

Scharf stated in a statement on Tuesday: "The growth methods that were completely unattainable during the era of asset caps are now possible, and we will move forward more aggressively to serve consumers, businesses, and communities, supporting U.S. economic growth." After losing constraints, Wells Fargo plans to expand large-scale mergers and acquisitions and large market-making businesses that were previously restricted. Chief Financial Officer Mike Santomassimo stated at an investor conference last month that the bank will leverage its trading-related business to drive net interest income (NII) back to a strong growth trajectory. Generally, large commercial banks can continuously generate NII from the difference between the interest earned on trading-related assets such as bonds or margin loans and the financing costs such as repurchase agreements.

Financial report data also showed that Wells Fargo's non-interest income totaled $9.11 billion in the second quarter, a year-on-year increase of 4%, exceeding analysts' expectations. Notably, the bank's investment banking fees, which had been sluggish for several quarters, unexpectedly grew by 8.6%.

Wells Fargo's stock price is close to historical highs, compliance issues have been cleared, and the bank has ample capital for dividends and buybacks. After passing the Federal Reserve's annual stress test, the bank announced this month plans to increase its third-quarter common stock dividend by 12.5% to $0.45 per share (subject to board approval). The board also approved a new round of stock buyback plan of up to $40 billion, a historically large scale, in April