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Wells Fargo sees 'incremental opportunity' from improved rate environment

Wells Fargo & Co. CFO John Shrewsberry said the interest rate environment is "better than we might have imagined during the middle of 2019" but does not pose a "breakout" opportunity.

Federal Reserve cuts to short-term rates and diminished recession concerns that have lifted long-term rates have restored the yield curve to a positive slope. The yield on 10-year Treasurys has increased about 40 basis points from a low in early September.

"Obviously, a positive slope is better than a flat or inverted curve," Shrewsberry said at a conference on Dec. 10. "I'd say rates probably feel a little bit better, not a lot better."

In October, Shrewsberry said market indicators of future interest rates at the time suggested that Wells Fargo's net interest income might drop by the "low to mid single digits" year over year in 2020, and there might not be "as much of a decline as from '18 to '19." The company has forecast a decline of 6% for 2019, which includes the impact of the sale of option adjustable-rate mortgages that it originally acquired when it bought Wachovia Corp.

Shrewsberry said the improvement in the rate picture since then is "not an enormous opportunity" but is an "incremental opportunity from an earnings perspective." Deposit costs are falling, but the market remains "very competitive," he said.

The industry has "woken up a whole lot of depositors to the idea that there's competition with yield for their excess liquidity," Shrewsberry said. "We'll all be paying a little bit more."