Wells Fargo posts mixed 4Q results

Wells Fargo and Co.’s 4Q18 results showed that its revenue stood at $20.98bn (-5% YoY), compared with $22.05bn posted in 4Q17, while diluted EPS came in at $1.21 vs $1.16 recorded in the same period of last year. Earnings topped the Refinitiv consensus estimate of $1.19, while revenue fell short of an expected $21.73bn. The results also reflected special items including a c. $432mn operating loss from legal costs, regulatory penalties and customer remediation (see below), and a $614mn gain on the sale of troubled mortgage loans that predate the 2007-2009 global financial crisis.

In lieu of revenue growth, CEO Tim Sloan has initiated an aggressive cost-cutting plan to boost profits and Wells Fargo met Sloan’s expense target last year when excluding big one-time items such as legal costs, regulatory penalties and customer remediation expenses. The bank is aiming to slash expenses to a range of $52bn-$53bn this year, and $50bn-$51bn by 2020. CFO, John Shrewsberry said that the bank was on track to hit those goals through its efficiency programmes that will reduce overall headcount by 5%-10%.

Profit at Wells Fargo’s community banking business fell to $3.17bn from the $3.47bn in 4Q17. The bank has been working to put a sales-practices scandal that erupted in its retail bank in September 2016 behind it but, since then, the bank has disclosed an array of problems throughout its business lines. In December, the firm agreed to pay $575mn to all 50 US states and the District of Columbia to settle claims that its retail-banking sales practices and improper auto-loan and mortgage charges harmed customers. It also faces probes from the US Department of Justice and the Securities and Exchange Commission (SEC).

Its loan book shrank 1% YoY in the quarter and deposits fell 3% YoY. 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.

In its results on Tuesday (15 January) the bank  highlighted some bright spots in its financial results, including YoY growth in primary consumer-checking customers, consumer credit card accounts, and debit and credit card usage. Nevertheless, it continues to be outperformed by its peers on key metrics, and in 2018, Wells’ share price fell more than 24% for the year.

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