Wells Fargo Profit Rises, Helped by Tax Law -- Update
January 12 2018 - 08:59AM
Dow Jones News
By Peter Rudegeair and Emily Glazer
Wells Fargo & Co. said its fourth-quarter profit rose as one
of the nation's largest banks continues to seek growth while trying
to move past its regulatory problems.
Shares fell 1.1% to $62.32 in premarket trading.
The bank reported a profit of $6.15 billion, or $1.16 a share,
above the average analyst estimate on Thomson Reuters of $1.07 a
share.
Excluding one-time impacts related to the tax law passed late
last year, the sale of an insurance business and a large legal
reserve, the profit was 97 cents a share, slightly above the 96
cents in per-share earnings that the bank reported in last year's
fourth quarter.
Wells Fargo is somewhat unique among big banks in that the tax
law caused it to record one-time gains to profits. Most other big
banks are expected to post one-time charges.
This is because Wells Fargo has a net deferred tax liability --
it was about $7 billion at the end of 2016 -- rather than a
deferred tax asset. Because of the fall in the U.S. corporate tax
rate, other banks will likely have to write down the value of some
of their deferred tax assets. Wells Fargo, however, wrote down part
of its tax liability -- taxes payable in the future -- which
resulted in a gain that boosts reported results.
Investors are expected to look past such one-time changes,
however. For Wells Fargo, led by Chief Executive Timothy Sloan, the
more immediate concerns are around growth and costs.
Wells Fargo had been one of the most consistent big banks at
growing earnings and revenue. But its shares have struggled since
the bank in September 2016 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 consumer-lending problems
around auto insurance charges and mortgage fees that regulators are
probing. Wells Fargo has said it plans to refund more than $100
million to consumers.
Wells Fargo also continues to face a spate of state and federal
investigations that the bank has said it is cooperating with.
Investors have so far given Mr. Sloan time to clean up the
problems, although the stock has underperformed big rivals over the
past year.
Big banks overall are expected to report a slight uptick in loan
growth after one of the worst 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 an
environment in which Wells Fargo and its peers don't earn as much
money by lending out their vast deposits.
During a November investor presentation, finance chief John
Shrewsberry said he's seeing more large corporate deals because
organic growth is harder. In the middle market, though, there is
less demand because Mr. Shrewsberry said companies are "financing
whatever their growth needs are through cash flow that they're
organically generating."
Overall revenue rose 2% to $22.1 billion.
Costs at Wells Fargo increased 27% to $16.8 billion from $13.22
billion in the fourth quarter of 2016 and included
litigation-related charges of $3.25 billion related to the
sales-practice scandal and other matters.
Expenses as a share of revenue in the fourth quarter was 76.2%,
well above the target of 60% to 61% set at an investor presentation
in May. The bank has operated well above its so-called efficiency
ratio of 55% to 59%, hitting an all-time high of 65.5% last quarter
and topping 59% for the past five quarters.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Emily
Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
January 12, 2018 08:44 ET (13:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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