Wells Fargo Reports Earnings Rose 4%, Revenue Fell -- 2nd Update
By Ben Eisen
Wells Fargo & Co.'s profit rose 4% in the final three months
of the year.
The San Francisco-based lender said Friday that it made $2.99
billion in the fourth quarter, up from $2.87 billion a year
earlier. Per-share profit totaled 64 cents, compared with analyst
forecasts of 59 cents.
Wells Fargo's results reflect a topsy-turvy year in which the
pandemic-induced recession forced lenders to sock away tens of
billions of dollars to prepare for a wave of soured loans. The bank
released $757 million from its pile of reserves in the fourth
quarter, largely because it no longer had to stow away cash on a
book of student loans it sold.
Net charge-offs remained low at $584 million, down almost a
quarter from a year earlier. So far, the government's expanded
unemployment, stimulus checks and small-business relief have staved
off widespread loan losses. But bank executives caution they could
still be coming after the bank's loan-deferral programs wear
"Although our customers seem to be in better shape than we would
have forecasted, the accommodations that we've provided since the
start of the pandemic are also helping to delay the recognition of
the charge-offs," said Michael Santomassimo, the bank's new finance
chief, on a call with analysts.
With banks so far weathering the crisis, regulators at the
Federal Reserve said last month they could start buying back their
own stock again, though total shareholder returns are limited to
the quarterly profit they generated over the past year. Wells Fargo
said its board approved the repurchase of an additional 500 million
shares and it expects to have the capacity to do buybacks totaling
about $600 million.
The bank posted revenue of $17.93 billion, down almost 10% from
$19.86 billion a year ago. That missed expectations of $18.12
Wells Fargo came into the coronavirus crisis in weaker financial
shape than its peers, trying to recover from its long-running
sales-practice scandal. Its stock fell 44% last year, by far the
worst performance among the six largest U.S. banks. However, it has
bounced back 15% this year, along with a rise in bank stocks
On Friday, Wells Fargo shares fell 7% in midday trading.
Chief Executive Charles Scharf has given priority to
cost-cutting in recent months, hoping to make the bank run as
efficiently as its competitors. On Friday, the bank said it has
identified $8 billion of gross potential savings through 250
initiatives and expects to achieve $3.7 billion of it this
Wells Fargo said it expects to take three to four years to
execute on all changes, which include cutting its real-estate
spending, hiring fewer consultants and cutting the back-end costs
on its consumer lending through automation. The bank expects to
close about 250 branches this year.
It has also been selling off some assets and is examining more
sales, including its asset-management, corporate-trust and rail
Wells Fargo has been laying off employees and is expected to
ultimately cut tens of thousands of people. The bank said Friday it
reduced head count by more than 6,000 last quarter, largely in its
consumer-banking and lending operations.
Noninterest expenses in the fourth quarter totaled $14.8
billion, down 5% from a year earlier.
"All in all, our returns remain significantly below where they
should be or what this organization is capable of, but we are
taking significant actions," Mr. Scharf said.
The bank's profit was also hit by a $781 million restructuring
charge and $321 million tied to customer remediation for its
Wells Fargo, which reorganized its divisions nearly a year ago,
broke out the financial performance of its new business lines for
the first time. Revenue fell in each of the four divisions.
Rock-bottom interest rates have dealt another blow to banks,
reducing the income they can earn from lending money. Wells Fargo's
net interest income fell 17% from a year ago to $9.27 billion,
while its noninterest income was roughly flat at $8.65 billion.
Wells Fargo said it currently expects net interest income to be
flat or down as much as 4% this year.
Write to Ben Eisen at firstname.lastname@example.org
(END) Dow Jones Newswires
January 15, 2021 12:35 ET (17:35 GMT)
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