REUTERS: Wells Fargo & Co posted a small rise in quarterly profit on Friday that beat Wall Street estimates, as stabilizing credit costs helped offset the hit from low-interest rates meant to prop up the ailing economy during the COVID-19 pandemic.
The bank, which has been plagued by hefty costs tied to litigation over the past several years, recorded a drop in overall expenses in the latest fourth quarter from last year. But costs remain elevated because of the sales practices scandal that has haunted it since 2016.
Wells Fargo paid US$321 million in customer remediation costs in the quarter, despite bank executives repeatedly signaling that the worst of the fallout, which has cost it billions, is in the past.
The company also booked US$781 million in restructuring charges as Chief Executive Officer Charlie Scharf takes tough measures to shift fortunes at the bank that he joined in 2019.
Scharf has targeted US$10 billion in savings annually over the long term. The bank has also been offloading assets, including a possible sale of its asset management business to a private equity consortium.
Wells Fargo was once seen as the crème de la crème of U.S. banks: it avoided the kind of problems that Wall Street rivals encountered during the 2007-2009 financial crisis.
But it has operated under a dark cloud since 2016, when details emerged about millions of phony accounts employees had created in customers' names without their permission to hit sales targets.
There have been revelations about other customer abuses, and Wells Fargo has been unable to shake the damage caused by all the blunders.
"Our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us," Scharf said in a statement.
Wells Fargo is also constrained by growth restrictions the U.S. Federal Reserve placed on its balance sheet as punishment for the sales abuses.
Net-interest income at Wells Fargo fell 17per cent to US$9.28 billion. Because Wells does not have a large capital markets business like JPMorgan Chase or Citigroup Inc - which also reported results on Friday - it has fewer ways to cushion declines in revenue from low interest rates.
Total revenue fell 10per cent to US$17.93 billion
Shares of Wells Fargo were down 4.3per cent at US$33 in opening trade.
The San Francisco-based bank reported net income of US$2.99 billion, or 64 cents per share, for the quarter ended Dec. 31, compared with US$2.87 billion, or 60 cents per share a year earlier.
Analysts had expected a profit of 60 cents per share on average, according to the IBES estimate from Refinitiv.
Costs associated with bad loans, however, were a bright spot, falling US$823 million compared to last year and remained far below the level seen in the first half of the year when the bank racked up more than US$14 billion in provision expenses.
(Reporting by Noor Zainab Hussain in Bengaluru and Imani Moise in New York; Editing by Bernard Orr)