Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

As loans and revenue shrink, Wells Fargo leans on cost cuts

Stock Markets Jan 15, 2019 01:18PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A Wells Fargo ATM machine is shown in Los Angeles, California
 
JPM
-0.79%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WFC
-1.98%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Imani Moise and Aparajita Saxena

(Reuters) - Wells Fargo (NYSE:WFC) & Co's loan book shrank and revenue fell across all its major businesses last quarter, as the fourth-largest U.S. lender continued to work through the consequences of wayward sales practices at its consumer bank.

Wells Fargo has struggled to regain its footing since sales abuses came to light in that business more than two years ago, when the bank said employees had opened millions of fake accounts in customers' names without their permission.

Management has since centralized risk controls, overhauled employee compensation and pushed a renewed focus on customer wellness to address underlying problems.

Some of those changes are hurting revenue, executives acknowledged on Tuesday when discussing fourth-quarter results. For instance, the bank now sends customers real-time low balance alerts to protect them from overdraft fees.

Wells Fargo is also experiencing cyclical pressure in mortgage lending, which was once its main money-maker, and has intentionally pulled back from some areas, like auto lending, where executives felt profit potential was limited.

Combined with legal and regulatory penalties for its sales abuses, which also involved overcharging hundreds of thousands of customers on auto loans, mortgages and account features they did not request, the bank has struggled to get its profit engine humming again.

In lieu of revenue growth, Chief Executive Officer Tim Sloan has laid out an aggressive cost-cutting plan to buoy profits.

The bank's shares were down 1.9 percent to $47.52 in midday trading.

ASSET CAP

Sloan said on Tuesday he expects the Federal Reserve to maintain an asset cap on the bank through the remainder of the year.

The Fed imposed that penalty in February as punishment for the sales abuses, saying it would only be lifted once the bank proved it had fixed what was wrong.

Wells Fargo executives initially said the cap would not hinder the bank's business growth, and as recently as July predicted it would be lifted by mid-2019.

But progress has been slower than expected, Sloan said on a call with analysts, who peppered him with questions about the profit impact of the asset cap.

"It is hard not to feel like the regulatory penalty box is endless," said Brian Foran, an analyst with Autonomous Research.

The bank has already paid billions in combined fines and settlements with regulators and private litigants over its sales abuses, and remains on a tight leash with the U.S. Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency as it continues remediation efforts.

Wells Fargo also faces probes from the U.S. Department of Justice and the Securities and Exchange Commission.

During the fourth quarter, the bank's loan book shrank 1 percent and deposits fell 3 percent. Consumer loans posted the biggest decline, hurt primarily by more people paying off their mortgages than taking out new ones. Mortgage banking revenue fell by half.

Wells Fargo's overall quarterly profit of $5.71 billion, or $1.21 per share, was down 1 percent from the $5.74 billion, or $1.16 per share, a year earlier.

Those results reflected special items including some $432 million in operating losses from legal costs, regulatory penalties and customer remediation, and a $614 million gain on the sale of troubled mortgage loans that predate the 2007-2009 financial crisis.

Analysts on average expected earnings of $1.19 per share, according to IBES data from Refinitiv.

Revenue fell 5 percent to $20.98 billion, below Wall Street's $21.73 billion estimate.

Wells Fargo met Sloan's expense target last year when excluding big one-time items like legal costs, regulatory penalties and customer remediation expenses.

The bank is now aiming to slash expenses to a range of $52 billion to $53 billion this year, and $50 billion to $51 billion by 2020. Wells Fargo is on track to hit those goals through efficiency programs that will reduce overall headcount by 5 percent to 10 percent, Chief Financial Officer John Shrewsberry said.

Earlier in the day, JPMorgan Chase & Co (NYSE:JPM) reported lower-than-expected quarterly profit and a slump in bond trading revenue.

As loans and revenue shrink, Wells Fargo leans on cost cuts
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email