Market Data 
By Noor Zainab Hussain, Manya Saini and Saeed Azhar
(Reuters) -Wells Fargo’s second-quarter profit declined and the lender missed analysts’ estimates for interest income on higher deposit costs amid intense competition for customers’ money, sending its shares down more than 5% in premarket trading.
Net interest income (NII) — or the difference between what a bank earns on loans and pays out for deposits — slid 9% to $11.92 billion. Analysts on average had expected $12.12 billion, according to LSEG data.
Average deposit costs jumped to 1.84% from 0.71% in the year-ago quarter, the bank said.
Banks are having to pay more to retain customers who are hunting for greater yields for their money against the backdrop of higher interest rates.
Lenders are also facing the fallout of higher-for-longer interest rates as borrowers balk at taking out new loans at high costs.
Net income fell to $4.91 billion for the three months ended June 30 versus $4.94 billion, a year earlier, Wells Fargo reported on Friday.
Wells Fargo’s profit, however, beat expectations in the second quarter, buoyed by a jump in fees from investment banking.
On a per-share basis, the company reported $1.33, compared with LSEG estimates of $1.29.
The fourth largest U.S. bank said its net charge-offs — or the amount of loans that are unlikely to be recovered — for commercial real estate (CRE) came in at $271 million, or 74 basis points of average loans, predominantly driven by the office segment.
The bank has worked to reduce its CRE exposure over the last year as the sector’s troubles exacerbated. While it had hiked provisions to cover potential defaults, particularly in the office space, executives have said the CRE portfolios remain manageable.
INVESTMENT BANKING BOOST
Investment banking was a bright spot for the bank in the second quarter. Rival JPMorgan Chase (NYSE:) also reported a 25% jump in second-quarter profit on Friday, buoyed in part by rising investment banking fees.
“We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Wells Fargo CEO Charlie Scharf said in a statement.
Investment banking revenue surged 38% to $430 million for the bank.
Under Scharf, Wells Fargo has beefed up its investment banking and trading activities, recruiting some top executives from rivals.
Merger and acquisition volumes hit $1.6 trillion globally in the first half of the year, up 20% from a year earlier, Dealogic data showed. Equity capital market volumes climbed 10% during the same period.
Still, Wells Fargo remains shackled by a $1.95 trillion asset cap that prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal.
The bank still has eight open consent orders after the U.S. Office of the Comptroller of the Currency in February terminated a 2016 punishment.
