Throughout 2022, Wells Fargo (NYSE: WFC) paid a smaller amount of interest on its deposit base than its peers.
Investors look for banks with lower-cost deposit bases because they are not as reactionary when the Federal Reserve raises its benchmark lending rate, aka the federal funds rate. The banks with the lowest deposit costs can fund loans and securities cheaper and make more money on the spread, which can be seen in a key bank revenue line item called net interest income (NII). Banks with lower deposit costs and more NII should outperform in 2023.
In the fourth quarter, Wells Fargo had to pay up more on its deposits, but continued to outperform its large bank peers. Let's take a look.
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Wells Fargo's Deposit Base Is Rising, But Continues Outperforming Peers