Wells Fargo expects short term profit hit from interest rates rise: CEO

A Wells Fargo Bank is shown in Charlotte, North Carolina, U.S., September 26, 2016. REUTERS/Mike Blake

(Reuters) - Wells Fargo & Co WFC.N will see a near-term profit hit because of the sharp rise in interest rates, Chief Executive Officer Tim Sloan said on Tuesday.

The news may be somewhat surprising to investors, who have been bidding up shares of Wells Fargo and other banks in part because of the view that they are likely to benefit from rising interest rates.

Ten-year treasury yields have risen to 2.38 percent on Tuesday from 1.78 percent on Nov. 4. Wells Fargo shares are up some 23 percent over the same period.

Speaking at an investor conference, Sloan said the bank will, however, benefit in the longer term from rising interest rates.

In the short term, certain securities the bank owns have declined in value, Sloan said.

He said the bank is also likely to see its results negatively impacted from how it accounts for the effectiveness of its hedges due to the rate rise and currency fluctuations.

While Sloan did not specify how big the impact on reported results would be, he pointed for comparison to a $379 million first-quarter hedge accounting gain from a sharp decline in interest rates and foreign currency moves.

“So far interest rates and foreign currency fluctuations have moved even more than in Q1, and in the opposite direction,” he said.

(This version of the story has corrected fifth, sixth and seventh paragraphs to show Wells expects an accounting drag in the fourth quarter from ineffective interest rate hedges, not hedging losses)

Reporting by Dan Freed in New York; editing by Grant McCool