Wells Fargo CEO Warns Inflation, Gas Costs and Higher Rates Continue to Weigh on Consumers, Expects Credit to Weaken 'At Some Point' — But Doesn’t See It Yet

Prices are weighing on households, the Federal Reserve is raising interest rates, and inflation is running above target, yet Wells Fargo & Co. (NYSE:WFC) said consumer credit is still holding up.

Higher Prices and Rates Weigh on Households

CEO Charlie Scharf said on the bank’s third-quarter earnings call that “higher prices continue to weigh on consumer sentiment” and that lower-income households “remain more sensitive to financing costs, inflation, and higher living and fuel expenses.”

He listed sticky inflation, the Middle East conflict and persistent fiscal deficits among the sources of uncertainty.

The Federal Reserve raised the federal funds rate by 25 basis points last month, with officials’ median projection in the September dot plot pointing to one more quarter-point hike later this year.

The personal consumption expenditures (PCE) price index rose 0.3% month-over-month in August, below economists’ expectations of 0.4%, according to the Bureau of Economic Analysis.

Credit Still Holds Up

Scharf said “at some point consumer credit conditions will weaken,” adding, that “we do not see signs of this yet.”

Early-stage delinquencies are at historically low levels, and the charge-off ratio has fallen from the prior quarter and from the same period last year.

In the third quarter, Wells Fargo customers’ credit card spending rose 12% year over year, and debit card spending rose 8%.

Consumers Offset Gas Costs With Savings Elsewhere

CFO Mike Santomassimo said gas and energy costs are “meaningful for sure,” but come to 3% to 6% of spending depending on income or wealth level.

Consumers have been able to offset that with savings in other spending categories, he said, adding that the picture should hold “as long as the economy continues to grow and employment stays strong.”

Gas prices have jumped amid the war in the Middle East, with AAA’s national average for regular at $4.3413 a gallon, up more than 40% from $3.0821 a year ago, while diesel is at $6.2787, more than 70% from $3.6533.

Beats on Earnings, Misses on Revenue

Wells Fargo reported third-quarter earnings of $1.87 per share, beating the Wall Street consensus estimate of $1.85, according to Benzinga Pro.

Revenue rose 2% year over year to $21.87 billion, missing analysts’ $22.29 billion estimate.

Price Action: Shares closed 3.10% lower on Tuesday at $80.74 and rose 0.2% to $80.9 in pre-market trading.

Benzinga Edge rankings indicate Wells Fargo’s stock has a Momentum score in the 43rd percentile and a Growth score in the 43rd percentile.

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