Shares of Wells Fargo & Co. took reversed course in morning trade Friday, swinging to a sharp loss from a healthy gain, after the bank lowered its outlook for net interest income, citing an unfavorable rate environment and an increasingly competitive marketplace.
The stock WFC, -2.62% was up as much as 2.2% at an intraday high of $48.82, which was reached at 10:13 a.m. Eastern, after the bank reported first-quarter earnings and revenue that fell less than expected.
The stock then pulled a sharp U-turn in active trading after the start of the post-earnings conference call with analysts, to fall as much as 3.5% to an intraday low of $46.06 at about 10:45 a.m. The stock has since pared some losses to be down 2.9% in afternoon trade.
Trading volume swelled to over nearly 60 million shares, compared with the full-day average of about 24 million shares.
The sharp selloff occurred after Chief Financial Officer John Shrewsberry said 2019 net interest income (NII) was now expected to fall 2% to 5% from a year ago, compared with previous guidance range of a decline of 2% to a rise of 2%. That was a surprise to investors, as the FactSet NII consensus of $51.15 billion implies a 1.0% increase.
“Several factors have driven a shift in our view including a lower absolute rate outlook, a flatter curve, tightening loan spreads resulting from a competitive market with ample liquidity and continued upward pressure on deposit pricing,” Shrewsberry said, according to a transcript provided by FactSet.
Wells Fargo’s stock was the biggest loser of the three components in the SPDR Financial Select Sector exchange-traded fund XLF, +1.84% that were losing ground. That contrasts with J.P. Morgan Chase & Co.’s stock JPM, +4.69% which surged 4.4% to pace the other 65 components gaining ground, after the bank reported a first-quarter profit and revenue that rose above expectations.
Also on the post-earnings call, the company provided no indication of when a new chief executive might be named, following the surprise announcement last month that former CEO Tim Sloan was retiring.
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“Although I’m available to the board for any necessary consultation or any other way they need me in connection with the process, I’m not involved in the search process, so unfortunately, I don’t have any insight into the criteria that they’re applying to their work, or the timetable that they’re thinking about in terms of completing that work,” Interim-CEO C. Allen Parker said on the call.
Raymond James analyst David Long reiterated his market perform rating. He raised his 2019 earnings-per-share estimate to $4.89 from $4.84 to reflect the better-than-expected first-quarter results, but cut his 2020 estimate to $5.27 from $5.38 because of the lower NII outlook.
“With inferior fundamental performance likely to continue and an uncertain outlook until the next CEO is named, we believe the upside to Wells Fargo’s shares is limited in the near term,” Long wrote in a note to clients.
Year to date, Wells Fargo’s stock has now edged up 0.6%, while the financial ETF has climbed 13.6% and the S&P 500 index has rallied 15.9%.