Wells Fargo missed on earnings in its first full quarter since its fraudulent accounts scandal.
On Friday the bank reported earnings per share of $0.96 on revenue of $21.58 billion. Those numbers were lower than the $1.00 and $22.45 billion that analysts were expecting.
The fourth quarter was the first full quarter since Wells Fargo’s fraudulent-accounts scandal came to light. The bank settled with regulators in September for opening as many as 2 million retail checking and credit-card accounts without the knowledge of customers going as far back as 2011.
Following the revelation, the company’s CEO at the time, John Stumpf, faced two congressional hearings and eventually stepped down, replaced by longtime Wells director Tim Sloan. The bank has also faced allegations of unfair practices toward employees who tried to report the fraudulent behaviour and revelations that the fake-accounts practice may have started much earlier than 2011.
“We continued to make progress in the fourth quarter in rebuilding the trust of our customers, team members, and other key stakeholders,” Sloan said in a press release accompanying earnings.
“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.”
Wells has taken steps to correct the problem, including eliminating sales goals for its retail-banking employees, refunding costs of anyone who had an account opened without his or her knowledge, and engaging in a press campaign to rehabilitate its image.
Part of the decline in earnings, Wells said, was due to hedge ineffectiveness. Essentially, because of the stronger US dollar and increasing interest rates, Wells debt conversions negatively affected its earnings by $0.07 a share, the bank said.
The bank did report higher interest income on its loans. CFO John Shrewsberry said this was partly due to the recent increase in interest rates.
“Net interest income increased from the prior quarter, largely driven by growth in loans and investments, as well as higher interest rates,” Shrewsberry said in the release. The bank said the contribution from higher rates was “modest.”
Additionally, the bank said it had solid loan growth in the quarter, up $6.3 billion from the previous quarter. Wells said the increased loan book came despite a decline in single-family homes and auto loans.
“Commercial and industrial, commercial real estate, credit card and lease financing all grew in the quarter, while real estate 1-4 family junior lien mortgage and automobile declined,” the release said.