Wells Fargo (NYSE:WFC)
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1 Month : From Dec 2019 to Jan 2020
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 email@example.com
(END) Dow Jones Newswires
January 14, 2020 12:50 ET (17:50 GMT)
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