WFC Wells Fargo and Company

By Emily Glazer 

Wells Fargo & Co. said its first-quarter profit rose as one of the nation's largest banks continues to seek growth while trying to move past its spate of regulatory problems.

The bank said it may need to restate its results given ongoing discussions and a possible looming settlement with two of its main regulators -- the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency. The regulators offered to resolve problems they are investigating with the bank's risk management for $1 billion, Wells Fargo said Friday.

Wells Fargo reported a profit of $5.94 billion, or $1.12 a share. Analysts polled by Thomson Reuters had expected earnings of $1.06 a share.

Revenues fell to $21.9 billion from $22.3 billion in the year-earlier period.

Shares rose 1.4% to $53.45 in premarket trading after the results were announced.

Wells Fargo is somewhat unique among big banks in that the new U.S. tax-law caused it to record one-time gains to profits. The bank last quarter also had one-time losses related to litigation.

Investors are expected to focus this quarter on the lender's growth prospects and ability to keep costs contained.

In early February, the Federal Reserve sanctioned Wells Fargo for failing to have proper risk controls in place that could detect such issues. In an unusual move, it barred the bank from growing above the $1.95 trillion in assets it had at the end of 2017. The Fed cited "widespread consumer abuses" in its rebuke.

Wells Fargo, run since 2016 by Chief Executive Timothy Sloan, had previously been one of the most consistent big banks at growing earnings and revenue. But its shares more recently have underperformed big bank peers.

In Sept. 2016, the San Francisco-based bank agreed to a $185 million settlement over opening as many as 3.5 million accounts with fictitious or unauthorized information.

Since then, the bank has disclosed wealth management problems and consumer-lending issues around auto insurance charges and mortgage fees, all of which regulators are probing. Wells Fargo has said it plans to refund around $145 million to consumers related to the consumer-lending problems.

The potential OCC and CFPB settlement that Wells Fargo referenced Friday is related to those auto-lending and mortgage problems. The bank said it is "unable to predict the final resolution" of that matter and "cannot reasonably estimate our related loss contingency."

Big banks overall are expected to continue reporting sluggish loan growth after one of the slowest-growth years for business lending since the financial crisis. And while interest rates have been rising of late, they remain at historically low levels. That leads to a challenging environment for Wells Fargo and its peers in the core business of lending out their vast deposits.

Costs at Wells Fargo have risen with the firm's regulatory problems. In the first quarter, they increased 3% to $14.24 billion from $13.79 billion a year ago. Expenses as a share of revenue in the first quarter was 64.9%, above the target of 60% to 61% set at an investor presentation in May 2017. The bank has operated well above its so-called efficiency ratio of 55% to 59%, hitting an all-time high of 76.2% in the fourth quarter of 2017 and topping 59% for the past six quarters.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

April 13, 2018 08:35 ET (12:35 GMT)

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