Wells Fargo sees a rare increase in profits as credit costs drop

(Reuters) – Wells Fargo & Co posted a small rise in quarterly earnings on Friday that beat Wall Street estimates, as stabilizing credit costs helped to buffer historic near-zero interest rates intended to support the economy in trouble during the COVID-19 pandemic.

The country’s fourth-largest bank, which has been plagued by hefty litigation costs in recent years, saw a decline in overall fourth-quarter expenses. But costs are still high due to a sales practice scandal that has haunted it since 2016.

Wells Fargo paid $ 321 million in customer repair costs in the quarter, despite bank executives repeatedly reporting that the worst fallout, which cost billions, is in the past.

The company also booked $ 781 million in restructuring fees as CEO Charlie Scharf takes tough steps to shift fortunes to the bank he joined in 2019.

Scharf aimed for long-term savings of $ 10 billion annually. The bank also dumped assets, including a possible sale of its wealth management business to a private equity consortium.

Wells Fargo was once seen as the cream of US banks: it avoided the kind of problems Wall Street rivals encountered during the 2007-2009 financial crisis.

But it has been operating under a dark cloud since 2016, when details emerged of millions of bogus accounts that employees had created on behalf of customers without their permission to reach sales goals.

There have been revelations of other customer abuse, and Wells Fargo hasn’t been able to shake up the damage all of the mistakes caused.

“Our results continued to be impacted by the unprecedented operating environment and the work required to leave behind our substantial legacy problems,” Scharf said in a statement.

Wells Fargo is also constrained by the growth restrictions that the US Federal Reserve has placed on its balance sheet as a punishment for abusive sales.

Because the bank doesn’t have a large capital market activity like JPMorgan Chase or Citigroup Inc, which also reported results on Friday, it has fewer ways to cushion the drop in revenue. from low interest rates.

Net interest income at Wells Fargo fell 17% to $ 9.28 billion. Meanwhile, total revenue fell 10% to $ 17.93 billion, missing analysts’ average estimates, according to IBES estimate. from Refinitiv.

Deposit growth has exploded across the industry as prudent consumers and businesses save more and spend less during the pandemic. Wells Fargo added deposits at a much slower pace than peers.

His total deposits increased 4%, compared to a 20% increase in Citigroup and 35% in JPMorgan.

Shares of Wells Fargo fell 7.2% to $ 32.25 in morning trading.

The bank handled some bright spots. It reported net income of $ 2.99 billion, or 64 cents per share, for the quarter ended December 31, compared to $ 2.87 billion, or 60 cents per share a year earlier.

Analysts had expected an average profit of 60 cents. The bank missed estimates in the first three quarters of last year.

Bad credit costs fell by $ 823 million from last year and remained far below the level recorded in the first half of the year, when the bank accumulated over $ 14 billion in provisioning expenses.

Reportage by Noor Zainab Hussain in Bengaluru and Imani Moise in New York; Editing by Bernard Orr