Banking

Wells Fargo details big drop in profits in first earnings report since new CEO named

Wells Fargo released its third quarter 2019 earning report early Tuesday.
Wells Fargo released its third quarter 2019 earning report early Tuesday.

A little over two weeks after choosing its new CEO, Wells Fargo announced its third quarter earnings for 2019 on Tuesday, where profits slipped.

The bank reported a net income of $4.6 billion — down from $6 billion this time last year. That’s a 23% drop.

And it’s revenue of $22 billion saw modest growth from 2018’s third quarter revenue of $21.9 billion.

Wells Fargo’s net interest income in the third quarter of 2019 was $11.6 billion, down $470 million from the second quarter due to low interest rates, the bank reported.

The bank’s diluted earnings per share dropped to $0.92, which included a $1.6 billion hit — or 35 cents per share — set aside for litigation, according to the earnings report.

Charles Scharf will take on his new position as CEO of the bank Oct. 21, and he will be based in New York.

Kyle Sanders, an analyst with Edward Jones, said he was happy with the CEO pick.

“This really couldn’t have been a better blend of experience and reputation,” Sanders said. Scharf had served as CEO of Bank of New York Mellon since 2017.

Wells Fargo interim CEO Allen Parker also praised the hire on an earnings call with analysts Tuesday: “I’ve had the opportunity to spend a great deal of time with Charlie, and I’m convinced that he has the right combination of experience, business savvy and leadership ability to position Wells Fargo for an even more successful future.”

Scharf replaces former CEO Tim Sloan, who stepped down in March. Sloan had been named CEO after the bank’s fake-accounts scandal erupted in 2016, where employees opened millions of accounts without customer permission.

The scandal and consumer abuses led to the Federal Reserve putting a cap in place that limits the bank’s growth, announced in February 2018. The cap is still in place.

Higher costs

The embattled bank topped Wall Street expectations in its second quarter 2019 earnings report in July, with a profit of $6.2 billion, the Observer reported. But the bank’s net interest income fell by $446 million, due to higher deposit costs and lower interest rates, Wells Fargo said at the time.

The San Francisco-based company employs about 26,000 people in the Charlotte area, the bank’s largest hub.

This quarter, the bank saw higher costs than analysts expected — but many of those costs are likely associated with closing branches and selling business, Sanders said.

“We would expect costs to start ratcheting down starting in the fourth quarter of this year,” he said.

The bank announced in 2018 that it planned to cut employment by about 5 to 10% over the next three years.

Wells Fargo sold its Charlotte-based institutional retirement and trust business, which employed about 800 people in the area, in July. The Charlotte sale followed Wells Fargo’s announcement of other sales to slash costs as it recovers from the scandals.

The bank saw a $1.1 billion, or 20-cent per share, gain in diluted earnings from the sale of the institutional retirement and trust business, according to the earnings report.

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