By Arasu Kannagi Basil and Saeed Azhar

(Reuters) -Wells Fargo's profit rose 6% in the first quarter as it collected more fees in wealth management and investment banking, but its CEO warned that U.S. tariffs risk slowing economic growth.

U.S. banks entered 2025 with a bullish outlook, backed by a resilient economy, resurgent dealmaking and business-friendly pronouncements from the new administration.

The optimism, however, unraveled over the last week as President Donald Trump's fluctuating announcements on tariffs stoked concerns about inflation that could tip the U.S. economy into a recession.

"We support the administration's willingness to look at barriers to fair trade for the United States, though there are certainly risks associated with such significant actions," CEO Charlie Scharf said in a statement.

"We expect continued volatility and uncertainty and are prepared for a slower economic environment in 2025, but the actual outcome will be dependent on the results and timing of the policy changes."

Still, the bank reiterated its annual interest income forecast. Shares of the San Francisco, California-based bank rose 2% in premarket trading. They have fallen 10% so far this year as of last close.

The fourth-largest U.S. lender's net income rose to $4.89 billion, or $1.39 per share, it said on Friday. That compares with $4.62 billion, or $1.20 per share, a year earlier.

In recent years, Wells Fargo has focused on cutting costs, fixing regulatory problems and investing in its businesses.

The bank has continued to slash its headcount as part of a broader push to save money, while also investing in technology to improve efficiency.

Wells Fargo's expenses fell 3% to $13.89 billion in the quarter compared with a year earlier.

The tariff turmoil has raised concerns that more borrowers would default on their loans. Still, credit quality held up in the first quarter at Wells Fargo allowing the bank to lower provisions.

Wells Fargo's provision for credit losses fell to $932 million in the quarter from $938 million a year earlier.

Investment banking fees jumped 24% to $775 million from a year earlier, driven by increased activity in debt capital markets.

Debt capital markets were a bright spot in an otherwise soft quarter for investment banking. Dealmaking slowed as corporations struggled to navigate through Trump's tariff policies.

Wells Fargo advised on Blackstone's $5.65 billion deal of Safe Harbor Marinas and Fubo's combination with Walt Disney's Hulu + Live TV business among deals in the quarter.

In a bright spot, Wells Fargo's investment advisory fees and brokerage commissions rose 7% to $3.17 billion in the quarter, driven by higher asset-based fees.

INTEREST INCOME

Meanwhile, the bank's net interest income - or the difference between what it earns on loans and pays out on deposits - fell 6% to $11.50 billion from a year earlier.

Executives have previously said interest income will be relatively stable in the first half of 2025, with more growth in the second half.

Wells Fargo still expects its annual interest income to rise 1% to 3% in 2025. The bank also reiterated its 2025 expense forecast.

Wells Fargo again repositioned a portion of its securities investment portfolio to shore up its interest income.

Rate cuts have spurred some U.S. banks to take a one-time hit on their underwater bond portfolios and reinvest those proceeds in higher-yielding paper.

The bank booked $149 million of net losses on the sale of debt securities in the quarter.

REGULATORY PROGRESS

Wells Fargo is still operating under a $1.95 trillion asset cap that prevents the bank from growing until regulators deem it has fixed problems from a 2016 fake accounts scandal.

The asset cap has curtailed Wells Fargo's ability to take in more deposits or expand businesses like investment banking and trading.

The bank has undergone a multi-year effort under Scharf's leadership to fix failings in its governance and risk management.

Progress on the regulatory front has accelerated since the beginning of 2025, with five consent orders closed so far this year, compared with one in 2024.

The bank has closed 11 consent orders since Scharf took the helm in 2019 and still has three open that it is working to address.

Wells Fargo's headcount was 215,367 on March 31, compared with 217,502 at the end of 2024. It has fallen every quarter since the third quarter of 2020.

(Reporting by Arasu Kannagi Basil in Bengaluru and Saeed Azhar in New York, editing by Lananh Nguyen and Anil D'Silva)