Scandal-hit Wells Fargo's quarterly profit falls 3.7 percent

Reuters News
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Posted: Oct 14, 2016 8:13 AM

(Reuters) - Wells Fargo & Co reported its fourth straight fall in quarterly profit as it set aside funds for potential legal costs amid an increasingly politicized bogus-account scandal that cost Chief Executive and Chairman John Stumpf his job.

The bank, which faces numerous federal and state investigations into its practices, said non interest expenses rose due in part to higher litigation accruals and salaries.

However, both earnings and revenue beat market expectations.

Stumpf, under pressure from lawmakers and other critics, stepped down on Wednesday after 34 years with the bank, handing over the CEO role to Timothy Sloan, who had been chief operating officer, and the chairmanship to lead director Stephen Sanger.

"I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders and community partners," Sloan said in a statement on Friday.

"We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members."

Wells Fargo, whose shares were up 0.5 percent in premarket trading, said its revenue rose 2 percent to $22.33 billion in the third quarter ended Sept. 30, while non interest income fell 0.4 percent to $10.37 billion.

Net income applicable to shareholders fell 3.7 percent to $5.24 billion, or $1.03 per share, from $5.44 billion, or $1.05 per share, a year earlier.

Analysts on average had expected the No. 3 U.S. bank by assets to report earnings of $1.01 per share and revenue of $22.21 billion, according to Thomson Reuters I/B/E/S.

Stock analysts have cut profit forecasts for the bank for quarters to come following the revelation that bank employees had opened as many as 2 million accounts without customers' knowledge or permission to meet aggressive sales targets.

San Francisco-based Wells Fargo has already agreed to pay $185 million to settle regulatory charges and fired about 5,300 employees in connection with the scandal.

Several big customers, including California and Illinois, have also suspended business relations with the bank.

The scandal is a rare setback for the bank, which emerged from the financial crisis relatively unscathed.

The bank, which has been trying to cut costs amid a drawn-out period of low interest rates, said non interest expenses rose 7 percent to $13.27 billion.

The Federal Reserve, which last raised interest rates by 0.25 percentage points in December, has kept rates unchanged since then but has indicated a possible hike in December.

Total loans rose 6.4 percent to $961.33 billion. The bank set aside $805 million to cover potential loan losses, up 14.5 percent from the third quarter of 2015.

Wells, the largest U.S. mortgage lender, reported $70 billion in home loan originations, up 27.3 percent from a year earlier and up 11 percent from the second quarter.

Mortgage banking revenue rose 4.9 percent to $1.67 billion, accounting for about 16 percent of noninterest income.

JPMorgan Chase & Co, the biggest U.S. bank by assets, earlier reported a 7.6 percent drop in quarterly profit after recording a tax expense, compared with a rare tax benefit a year earlier.

Citigroup Inc, the fourth-biggest U.S. bank by assets, reported a 7.8 percent fall in quarterly profit

Up to Thursday's close of $44.75, Wells Fargo's shares had fallen about 10 percent since reports of the settlement emerged in early September.

(Reporting by Nikhil Subba and Richa Naidu in Bengaluru; Editing by Ted Kerr)