Image source: Wells Fargo earnings presentation, Oct. 14, 2020.
By Noor Zainab Hussain and Imani Moise
(Reuters) – Wells Fargo & Co fell short of Wall Street estimates for third-quarter profit on Wednesday as the bank clocked nearly $1 billion in expenses tied to a years-long sales scandal, while near-zero interest rates hurt its bottom line.
Chief Executive Officer Charlie Scharf, who marks one year at Wells Fargo this month, has made cost cuts a cornerstone of his plan to turn the scandal-plagued bank around.
Over the long-term he said annual expenses can be $10 billion dollar lower, but pandemic-related costs like cleaning fees for enhanced technology systems have so far kept the bank from making meaningful progress in the short term.
“Strong mortgage banking fees, higher equity markets, and declining sequential charge-offs positively impacted our results, while historically low interest rates reduced our net interest income and our expenses continued to remain elevated,” Scharf said.
Wells Fargo said its pre-tax results were hurt by $961 million of customer remediation accruals, indicating that the bank was still feeling the burn of its sales practice scandal.
The lender has faced severe regulatory scrutiny since the scandal erupted in 2016 when the bank disclosed it had opened millions of bogus accounts for customers, costing the company billions in fines.
Mounting costs do not help as the banking industry deals with near-zero interest rates and slower loan growth.
Net-interest income at the fourth-largest U.S. bank was $9.4 billion, down $512 million from the second quarter, as its loan book shrank 2%. Total revenue fell 14%.
Because Wells does not have a large capital markets business like JPMorgan Chase or Bank of America Corp, it has fewer ways to cushion declines in revenue from low interest rates.
The lender also recorded $718 million in restructuring charges, mainly for severance costs.
Wells Fargo did offer some good news. Allowance for credit losses for loans was $20.5 billion, flat compared with the previous quarter.
The bank reported net income applicable to common stock of $1.72 billion, or 42 cents per share, for the quarter ended Sept. 30, compared with $4.04 billion, or 92 cents a year earlier.
Analysts had expected a profit of 45 cents per share, according to Refinitiv data.
Shares of the company were down less than 1% in pre-market trade.
Reporting by Noor Zainab Hussain in Bengaluru and Imani Moise in New York; Editing by Bernard Orr.
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Source: Reuters, Wells Fargo
