Wells Fargo Quarterly Earnings Fall in Wake of Bogus-Accounts Scandal

WASHINGTON (Los Angeles Times/TNS) -

Wells Fargo & Co. on Friday reported a 6 percent drop in fourth-quarter profit in the wake of a scandal over its employees creating as many as 2 million accounts without customer authorization.

Earnings at the San Francisco-based bank, the nation’s third-largest, came in below analysts’ estimates as Wells Fargo continued to deal with the fallout from the controversy that has caused a steep drop in the number of new account openings.

For all of 2016, profits declined 4 percent to $21.9 billion compared to the previous year. The drop came despite a 3 percent increase in revenue to $88.3 billion.

In trading Friday, Wells Fargo stock rose 81 cents, or 1.5 percent, to $55.31. The stock is up more than 25 percent since bottoming out in early October in the aftermath of regulatory settlements and congressional hearings triggered by the problems with unauthorized accounts.

The bank improved its acquisition of new customers in December, opening 2 percent more checking accounts than in November. But the figure still was down 40 percent from a year earlier.

Credit card applications declined 7 percent in December from the previous month, and were down 43 percent from a year earlier.

“We continued to make progress in the fourth quarter in rebuilding the trust of our customers, team members and other key stakeholders,” said Chief Executive Tim Sloan.

He noted that the bank this month changed the way it pays tellers and other bank workers, eliminating the incentive-compensation system that led employees to create accounts for customers without their approval.

“I am pleased with the progress we have made in customer remediation, the ongoing review of sales practices across the company and fulfilling our regulatory requirements for sales practices matters,” Sloan said.

For the October-through-December period, Wells Fargo’s net income declined to $5.3 billion, or 96 cents per share, from $5.6 billion, or $1.03 per share, a year earlier. Fourth-quarter revenue was $21.6 billion, the same as a year earlier.

Analysts had expected earnings per share of $1 on $22.5 billion in revenue, according to FactSet Research Systems Inc.

Fourth-quarter profit at Wells Fargo’s community banking division, which includes the unit responsible for the unauthorized accounts, declined by 14 percent, to $2.7 billion, from a year earlier.

The quarter was the first full one since the scandal broke, although Wells Fargo took another hit last month when federal regulators sanctioned the bank after rejecting its detailed plans for bankruptcy should it fail — known as a living will.

In September, Wells Fargo agreed to pay $185 million to settle investigations by Los Angeles City Attorney Mike Feuer, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency to end investigations into the unauthorized accounts.

The practices were first reported by the Los Angeles Times in 2013.

A month after the settlement announcement, the scandal led to the resignation of John Stumpf as chairman and chief executive officer after he was pilloried by lawmakers in two congressional hearings. He was replaced by Sloan.