Business

Wells Fargo’s fourth-quarter profits drop in wake of scandal

A woman uses an ATM at a Wells Fargo & Co. bank branch in Los Angeles, California.
A woman uses an ATM at a Wells Fargo & Co. bank branch in Los Angeles, California. Bloomberg

Wells Fargo reported Friday that its fourth quarter profits fell about 5 percent, as the bank continued dealing with the fallout from a sales scandal.

Fourth-quarter net income totaled $5.3 billion, San Francisco-based Wells Fargo said, down from $5.6 billion in the fourth quarter last year. Revenue was flat, at $21.6 billion.

In September, Wells Fargo was fined $185 million after allegations of “widespread illegal practices” in which employees secretly opened unauthorized accounts for customers to meet sales goals.

“We continued to make progress in the fourth quarter in rebuilding the trust of our customers, team members and other key stakeholders,” said CEO Tim Sloan. He said the bank has distributed $3.2 million to customers in reimbursements related to unauthorized accounts. “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.”

There were indications in the bank’s earnings report that Wells might still have more work to do with its customers. The number of credit card applications in December plunged 43 percent from December 2015, and the number of new consumer checking accounts opened fell 40 percent.

“While account openings are still down from a year ago, customers continue to actively use their accounts,” Sloan told analysts on a conference call. “We are pleased that the trends have stabilized and many metrics have started to show improvements.”

Wells Fargo’s earnings per share totaled 96 cents, below analysts’ consensus estimate of $1 per share. Some analysts said they expect the sales scandal to hurt the bank’s profits for the foreseeable future.

“We note (Wells Fargo) is seeing a revenue hit from its sales practices scandal. While it is taking numerous steps to overcome this issue, we think near term results may lag peers,” wrote Cathy Seifert, an equity analyst at CFRA Research.

$5.3 billionWells Fargo’s total profit in 4Q 2016

$5.3 billionWells Fargo’s total profit in 4Q 2015

The company said it expects to close about 200 branches in 2017 and another 200 or more in 2018, as more customers move to online banking and, increasingly, their phones. Those pending closures represent an acceleration from the 84 branches Wells Fargo closed in 2016, and they’re part of the bank’s plan to keep a lid on expenses.

Wells Fargo employs more than 23,000 workers in Charlotte, making it the bank with the largest local employee base.

For the full year, Wells Fargo’s revenue ticked up 3 percent, to $88.3 billion. The company’s profits for 2016 fell just over 4 percent, to $21.9 billion.

“Wells Fargo had solid underlying performance in the fourth quarter as we continued to benefit from our diversified business model,” said Chief Financial Officer John Shrewsberry.

Bank of America, which also reported fourth quarter earnings on Friday, saw profits leap 43 percent. But the Charlotte-based bank still had lower total earnings for the quarter, at $4.7 billion, than Wells Fargo.

Ely Portillo: 704-358-5041, @ESPortillo

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