Wells Fargo quarterly earnings fall in wake of bogus-accounts scandal
Wells Fargo & Co. on Friday reported a 6% drop in fourth-quarter profit in the wake of a scandal over its employees creating as many as 2 million accounts without customer authorization.
Earnings at the San Francisco-based bank, the nation’s third-largest, came in below analysts’ estimates as Wells Fargo continued to deal with the fallout from the controversy, which has caused a steep drop in the number of new account openings.
Still, in a conference call with analysts, Chief Executive Tim Sloan said he was “excited that we saw what seems to be an inflection point” in the scandal’s effects.
“We are pleased that the trends have stabilized and many metrics have started to show improvements,” he said.
The bank improved its acquisition of new customers in December, opening 2% more checking accounts than in November. But the figure still was down 40% from a year earlier.
Credit card applications declined 7% in December from the previous month, and were down 43% from a year earlier.
Fourth-quarter profit at Wells Fargo’s community banking division, which includes the unit responsible for the unauthorized accounts, declined by 14%, to $2.7 billion, from a year earlier.
Overall, Wells Fargo’s net income declined to $5.3 billion, or 96 cents per share, from $5.6 billion, or $1.03 per share, a year earlier. Fourth-quarter revenue was $21.6 billion, the same as a a year earlier.
Analysts had expected earnings per share of $1 on $22.5 billion in revenue, according to FactSet Research Systems Inc. The quarter was the first full one since the scandal broke.
For all of 2016, profits declined 4% to $21.9 billion compared to the previous year. The drop came despite a 3% increase in revenue to $88.3 billion.
During the bank’s conference call, Sloan noted that the bank had taken steps to put the scandal behind it.
He highlighted the bank’s new compensation system, which was announced this month and changed the way it pays tellers and other bank workers. It eliminates the incentive-compensation system that led employees to create accounts without customer approval.
Investors reacted well to Friday’s earnings announcement. Wells Fargo stock rose 81 cents, or 1.5%, to $55.31. The stock has recovered 27% since hitting a 52-week low in early October.
But Bert Ely, an independent banking analyst, said it was unclear whether Wells Fargo was past the scandal.
“I do not believe anyone can predict whether Wells has hit bottom with regard to its retail banking problems — hopefully it has — but I do not believe it is going to snap back very quickly from them,” he said.
At the very least, the bank continues to be dogged by controversy, which has never really ceased since Wells Fargo agreed in September to pay $185 million to settle investigations by Los Angeles City Atty. Mike Feuer, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
Even on Friday, its efforts to highlight steps it has taken to move on were not entirely successful.
The bank reported that as of Dec. 9, it had refunded about $3.2 million to customers for fees and charges related to “potentially unauthorized accounts.” The bank said it believed that had fulfilled its requirements under its settlement with regulators.
But Feuer said in a prepared statement issued later in the day that, “It’s too soon to say that all affected Wells Fargo customers have been made whole.”
The practices, first reported by the Los Angeles Times in 2013, led to the resignation of John Stumpf as chairman and chief executive officer after he was pilloried by lawmakers in two congressional hearings. He was replaced by Sloan.
Two other big banks reported four-quarter earnings on Friday that beat forecasts. JP Morgan Chase, the nation’s largest bank by assets, said its profits rose 24 percent. Bank of America, the nation’s largest consumer bank, said profits rose 47%.
The Associated Press was used in compiling this report.
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UPDATES:
3:25 p.m.: This article was updated with additional details, comment from a Wells Fargo conference call and from analyst Bert Ely, as well as the final stock price.
6:55 a.m.: This article was updated with full-year results and Wells Fargo’s stock price on Friday.
This article originally was published at 6:10 a.m.
