Wells Fargo earnings: Profit falls on legal costs from bank accounts scandal

Wells Fargo on Friday reported earnings that badly lagged Wall Street forecasts as the banking giant continued to address a scandal over millions of unauthorized accounts and investigations of...

Wells Fargo on Friday reported earnings that badly lagged Wall Street forecasts as the banking giant continued to address a scandal over millions of unauthorized accounts and investigations of its mortgage practices.

The San Francisco-based banking giant said its quarterly profit fell 18.6%. Wells Fargo shares fell 2.4% to $53.88 in pre-market trading after the results were announced.

Wells Fargo reported earnings of 84 cents per share on net income of $4.57 billion. The result compared with $5.64 billion, or $1.03 a share, for the same period last year. The outcome also missed the forecasts of $1.03 earnings per share and net revenue of nearly $5.14 billion in a survey of financial analysts by S&P Capital IQ.

The bank said its quarterly revenues totaled $21.9 billion, a 2% drop from the same period last year. Wall Street financial analysts had expected nearly $22.30 billion in revenue.

The bank also reported that the three-month period ending Sept. 30 included a $1 billion litigation accrual for the upcoming cost of settling previously disclosed regulatory investigations into the bank’s mortgage-lending practices.

Wells Fargo CEO Tim Sloan acknowledged the financial impact of the mortgage-related accrual but said the bank achieved growth in average deposits, residential mortgages, and credit cards.

Although Wells Fargo in the past reported consistent earnings growth that typically outpaced its major bank peers, the company’s financial performance has been badly hobbled by the scandal over unauthorized accounts.

The scandal made national news and startled consumers in Sept. 2016 as the bank was hit with $185 million in penalties as part of a settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and Los Angeles legal officials. Investigators in those agencies said Wells Fargo had secretly opened millions of deposit and credit-card accounts that harmed its customers.

The federal and state investigators found that the bank had boosted its sales figures by secretly opening the accounts – and then funding them by transferring money from customers’ authorized accounts without their knowledge or permission.

More: Wells Fargo review finds 1.4M more potentially unauthorized accounts

A civil action filed by the federal and state officials said the rationale was simple. Wells Fargo “victimized their customers by using pernicious and often illegal sales tactics to maintain high levels of sales of their banking and financial products,” the legal action charged.

The bank initially reviewed 93.5 million current and former customer accounts opened from May 2011 through mid-2015 and identified roughly 2.1 million potentially unauthorized accounts.

In August 2016, however, Wells Fargo said a newly completed independent review, which examined more than 165 million retail banking accounts opened from Jan. 2009 through Sept. 2016, found approximately 3.5 million potentially unauthorized accounts.

The scandal prompted the resignation of then-CEO John Stumpf. Trying to move past the episode, Wells Fargo has shaken up its board of directors, ousted several top executives and changed its compensation system by removing sales incentives as a factor in salary hike decisions for many employees.

 

 

Source: USA TODAY

Featured Image: NerdWallet 

Inset Image: USA Today 

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