Wells Fargo Reports Higher Earnings -- Update
April 13 2018 - 9:22AM
Dow Jones News
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, though, given
ongoing discussions and a possible looming settlement with two
regulators -- the Consumer Financial Protection Bureau and Office
of the Comptroller of the Currency. The regulators offered to
resolve problems they are investigating with ghe 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 nearly 1% to $53.16 in premarket trading after the
results were announced. 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 late 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 September 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-lending 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."
The sales scandal and other regulatory investigations have
boosted expenses, which are likely to remain high for some time.
This is happening as interest rates have begun to rise. The result
of this combination: Wells Fargo's return on equity rose from a
year ago, to 12.37%, but was down from last year's fourth
quarter.
Profits at Wells Fargo's community banking division, which
includes the unit responsible for the questionable sales tactics
over the past several years were $2.71 billion, a 3.9% decrease
from the $2.82 billion it earned in the first quarter of 2017.
Though low rates had been a boon for certain aspects of home
lending, the all-important refinancing market has largely slowed
down. Wells Fargo's mortgage business, the largest in the United
States by volume, earned $934 million in fees in the first quarter,
down 24% from the $1.23 billion it earned in the same period a year
ago.
The bank extended $43 billion in home loans between the end of
January and the end of March, compared with $44 billion in the
first quarter of 2017 and $53 billion in the fourth quarter of
2017.
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 were 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.
Wells Fargo's loan book continued to contract. Total loans at
the end of the first quarter tallied $947.31 billion, a decrease
from $958.41 billion in the same period a year ago. Commercial
loans, which make up one of the largest part of the bank's total
portfolio, were $503.4 billion, down from $505 billion in the first
quarter of 2017.
At the same time, Wells Fargo reported profitability of its
lending activities continued to be challenged. Its net interest
margin, a measure of how profitably it can lend out its customers'
deposits, was 2.84%. That was flat from the prior quarter and down
from 2.87% in the year-ago first quarter.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
April 13, 2018 09:07 ET (13:07 GMT)
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