Sales scandal weighs on Wells Fargo’s first-quarter results

Wells Fargo, working to move past its sales scandal, reported second-quarter earnings on Thursday.
Wells Fargo, working to move past its sales scandal, reported second-quarter earnings on Thursday. Bloomberg

Wells Fargo reported flat first-quarter earnings as the San Francisco-based bank continues to wrestle with a sales scandal that has tarnished a company long known as one of the industry’s top performers.

The nation’s No. 3 bank by assets posted a profit of $5.5 billion in the first three months of the year, the same as a year ago, as profits dipped in the community banking unit where the scandal was centered.

Earnings per share were $1.00, up from 99 cents a year ago and above the 97 cents expected by analysts polled by Zacks Investment Research. Total revenue was $22 billion, down 1 percent and below the $22.3 billion expected by analysts.

In pre-market trading, Wells shares dropped more than 2 percent to $51.91 on a down day for bank stocks.

In September, Wells Fargo agreed to pay $185 million in fines to settle allegations that thousands of employees created more than 2 million potentially unauthorized customer accounts to meet aggressive sales goals. The scandal led to a management shake-up and spurred multiple investigations.

On Monday, the bank’s board issued a 113-page report that placed blame for the scandal squarely on former community bank head Carrie Tolstedt and former CEO John Stumpf, both of whom left the company last fall. The directors themselves are likely to face tough questions from investors at the company’s April 25 annual shareholders meeting.

“Wells Fargo continued to make meaningful progress in the first quarter in rebuilding trust with customers and other important stakeholders, while producing solid financial results,” Tim Sloan, who became CEO in October, said in a statement Thursday. “We have taken significant actions throughout the company to date, and we are committed to building a better bank as we move Wells Fargo forward.”

Profits in the community banking unit fell to $3 billion, from $3.3 billion a year ago, while net income in the bank’s other two main business lines – wealth management and wholesale banking – were up.

New checking account openings fell 35 percent in March from a year ago, while new credit card applications dropped 42 percent.

Wells’ total loans fell by more than $9 billion to $958.4 billion from the end of the fourth quarter, driven by a seasonal decline decline in credit card balances , a slowdown in new credit card account openings and a drop in home-equity loans. The bank also said auto loans shrank as it tightened lending standards.

Total employment at the bank climbed by about 3,700 to 272,800. Wells has said it has more than 24,000 in Charlotte, making it the company’s biggest employment hub.

Wells Fargo was one of three big banks to report first-quarter earnings Thursday.

JPMorgan Chase said its first-quarter profit rose 17 percent to $6.4 billion, or $1.65 per share, while Citigroup’s profit also climbed by 17 percent to $4.1 billion, or $1.35 per share. Charlotte-based Bank of America reports results on Tuesday.

Rick Rothacker: 704-358-5170, @rickrothacker