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Holly LaFon
Holly LaFon
Articles (8477) 

Wells Fargo Earnings Dented by Litigation Fees

Mortgage crisis, fake accounts challenge company in earnings beat

January 12, 2018 | About:

Wells Fargo (NYSE:WFC) reported earnings for the fourth quarter of 2017 on Thursday morning before markets opened, with the nation’s second largest bank by market cap reporting per-share earnings of $1.16. Analysts were looking for earnings per share of $1.04, according to Nasdaq.

Shares of Wells Fargo sank 0.79% by mid-morning to trade around $62.56 and have gained 13% over the past year, versus 16% for the past year versus the S&P 500’s rise of 22%. The market’s tepid response came as the bank reported weakness in other key financial areas.

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Wells also reported revenue of $22.1 billion, a decline from $21.6 billion in the same quarter of 2016. Net interest income decreased 1% to $12.3 billion. The decline was primarily due to $183 million in leveraged leases related to the Tax Act that reduced loan yields.

The bank’s average loans also declined to $951.8 billion compared to $964.2 billion.

“We've made progress on our efficiency initiatives and remain committed to our target of $2 billion of expense reductions by the end of 2018, which are being used to support our investments in the business, and an additional $2 billion by the end of 2019,” Wells Fargo Chief Financial Officer John Shrewsberry said.

Wells Fargo offered no update on the fake accounts scandal that rattled the bank over the past several years. At final count, it discovered as many as 3.5 million unauthorized accounts employees opened under pressure to meet sales quotas. In response to the situation, the company fired its CEO John Stumpf and head of community banking, clawing back $180 million in executive compensation. It also refunded $3.2 million to retail and small business accounts and settled a class action lawsuit for $110 million.

It did say, however, that it faced a $3.3 billion litigation charge tied to the scandals and matters related to the mortgage crisis, which helped its non-interest expense soar to $58.5 billion, or 59 cents per share for the fourth quarter. Also drastically affecting the bottom line was a $3.4 billion after-tax benefit from the Congress’ recently approved Tax Act that added 67 cents per share to earnings.

Warren Buffett (Trades, Portfolio), one of the bank’s largest shareholders with 464,232,268 million shares, sold a total of 15,472,002 million shares in the second and third quarters. But Buffett said back in October that he sold the shares to stay under the 10% federal limit for bank ownership and that “[CEO] Tim Sloan has my faith.”

See Warren Buffett (Trades, Portfolio)'s portfolio here.


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