Dive Brief:
- Wells Fargo’s fourth-quarter profits plummeted 53%, to $2.87 billion from $6.06 billion a year ago, the bank said in its earnings call Tuesday. The figure marked the bank’s lowest net income in nine years, according to American Banker.
- The bank booked a $1.5 billion charge for legal costs related to its 2016 fake-accounts scandal, the second straight quarter it has taken a hit that size. The litigation costs pushed Wells Fargo’s non interest expenses up 17% for the quarter, compared with a year ago.
- Tuesday’s call marked Wells Fargo’s first with CEO Charlie Scharf at the helm. Scharf joined the bank in October after stints leading Bank of New York Mellon and Visa.
Dive Insight:
Scharf made clear Tuesday that he is prioritizing the resolution of Wells Fargo’s regulatory issues. The bank has 12 public enforcement actions that require a significant commitment of resources, he noted in a call with analysts, according to American Banker.
“During my first three months at Wells Fargo, my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results,” Scharf said in a press release.
“My experience is that our regulators are clear, direct, tough but fair. The work is on us at this point,” he added during the call.
Scharf said the bank may take “much of this year” to conduct reviews of the budget and broader business, according to Bloomberg.
“There are still big parts of the company where we are extraordinarily inefficient,” Scharf said during the call. “We want to be able to think with as clean a sheet as possible about how we should be spending our money.”
Wells Fargo’s net interest income fell 11.1%, or $1.4 billion, to $11.2 billion in the fourth quarter, a figure CFO John Shrewsberry blamed on low interest rates, which the Federal Reserve cut three times in 2019. However, those rates did help Wells Fargo boost its mortgage income to $783 million from $467 million a year earlier.
Revenue fell 5.3% to $19.9 billion, missing analysts’ estimates of a 4.3% decline.
Among the report’s bright spots: Average loans rose by 1% to $956 billion, deposits increased by 4% to $1.3 trillion, and the bank’s number of primary consumer checking customers rose for the ninth consecutive quarter.
Wells Fargo has operated under a $1.95 trillion asset cap since the Federal Reserve restricted its growth in 2018. Former Wells Fargo CEO Tim Sloan estimated last January that the cap might be lifted at the end of 2019. But in April, after Sloan’s resignation, the bank said it wouldn’t give a timeline on the cap’s expiration.
Analysts at Keefe, Bruyette & Woods on Tuesday told American Banker they do not expect Wells Fargo’s assets to climb above cap level until the first quarter of 2021.
“Please recognize that it is still early days — I don’t have all the answers yet, but I will share more as I learn more and as the year progresses,” Scharf said on the call, according to Bloomberg.
