Wells Fargo's Results Sink on Legal Reserves -- 4th Update
14 Januar 2020 - 07:05PM
Dow Jones News
By Ben Eisen
Wells Fargo & Co.'s fourth-quarter profit plunged, hurt by
costs related to its long-running fake-account scandal and flagging
business lines.
The lender on Tuesday said it took a $1.5 billion charge for
costs stemming from the scandal that has dogged it since 2016,
fueling a 53% profit drop. The bank has said it is in talks to
settle a joint Justice Department and Securities and Exchange
Commission probe into the matter.
The quarter also marked the start of the tenure of Charles
Scharf, who joined Wells Fargo as chief executive in October. He
has been tasked with resolving a pile of regulatory issues and
improving the San Francisco-based bank's reputation.
"We came out of the financial crisis as the most valuable and
most respected bank in the U.S.," Mr. Scharf said on a call with
analysts. "But as you know we made some terrible mistakes and
haven't effectively addressed our shortcomings."
In a statement, he called Wells Fargo "a wonderful and important
franchise" but said he would make "fundamental changes" to regain
trust. He also said he would tackle regulatory problems "with a
different sense of urgency and resolve." However, he declined to
lay out a timeline for resolving regulatory problems, which include
a cap on asset growth by the Federal Reserve and 12 public
enforcement actions. He said the issues won't necessarily be
resolved this year.
Mr. Scharf said the company would roll out a new organizational
structure, pointing to the recent hire of Santander Consumer USA
Holdings Inc. CEO Scott Powell, and other additions and departures.
He also said he is reviewing Wells Fargo's individual
businesses.
The results were a contrast to JPMorgan Chase & Co. and
Citigroup Inc., both of which reported higher fourth-quarter profit
and revenue. Shares of JPMorgan and Citigroup were both up in
midday trading. Wells Fargo shares sank 4%.
The bank's quarterly earnings totaled $2.87 billion, versus
$6.06 billion a year earlier. Per-share earnings of 60 cents missed
the $1.12 expected by analysts polled by FactSet.
Unhappy regulators aren't Wells Fargo's only problem. Key
business lines have been struggling, and some investors fear
customers will leave as the firm's reputation erodes.
Fourth-quarter revenue fell 5%, to $19.86 billion from $20.98
billion a year ago. Analysts had expected $20.1 billion.
Revenue declines have forced the bank to refocus on cutting
costs, and Mr. Scharf said Tuesday that the cost structure was
still too high. The bank's expenses rose 17% to $15.61 billion from
$13.34 billion a year ago. Reflecting the cost of litigation, the
bank's full-year expenses of $58.18 billion missed the company's
target of about $53 billion.
Wells Fargo also had to pay its customers more for their
deposits. The yield on total interest-bearing deposits was 0.85% in
the fourth quarter, up from 0.77% a year earlier, even though the
Fed cut interest rates three times last year. JPMorgan, by
contrast, was able to lower what it paid customers for their
deposits.
The higher yield is a result of promotional campaigns and should
fall along with interest rates in subsequent quarters, Chief
Financial Officer John Shrewsberry said.
Falling rates can also hurt bank profits by crimping what banks
can charge on loans. Net interest income, the amount banks make
from lending minus what they pay out on deposits, fell 11% from a
year ago, a worse performance than at JPMorgan or Citigroup. Net
interest margin was also down over the quarter and over the
year.
Noninterest income, which is more protected from rate
fluctuations, rose 4%.
Mortgage lending, a key area for Wells Fargo, picked up.
The bank was the largest mortgage lender by originations in the
third quarter, according to industry research group Inside Mortgage
Finance. It extended $60 billion in the fourth quarter as
homeowners continued to refinance, versus $38 billion a year
earlier.
Still, profit was down from a year ago in all three of the
bank's business lines, which include consumer banking, wholesale
banking and wealth and investment management.
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Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
January 14, 2020 12:50 ET (17:50 GMT)
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