A person wearing a protective mask walks past ATMs at a Wells Fargo branch in New York, the US. Picture: MARK KAUZLARICH/BLOOMBERG
A person wearing a protective mask walks past ATMs at a Wells Fargo branch in New York, the US. Picture: MARK KAUZLARICH/BLOOMBERG

New York — Wells Fargo’s profit slumped 56% as CEO Charlie Scharf took charges to address old scandals and begin his job-cutting push.

The bank on Wednesday posted a surprise increase in third-quarter expenses as it set aside almost $1bn for customer remediation and $718m in restructuring charges. That countered loan-loss provisions that came in at less than half what analysts had expected.

In his first year atop Wells Fargo, Scharf has been working to move the firm past a series of scandals. He is charged with making harmed customers whole, repairing relations in Washington and improving earnings. He has repeatedly lamented the bank’s high costs, pledging to ultimately shave $10bn off annual expenses.

“Our top priority continues to be the implementation of our risk, control and regulatory work, but we are also taking targeted actions to improve the experience for our customers, clients, communities and employees,” Scharf said in a statement on Wednesday. “The trajectory of the economic recovery remains unclear as the negative affect of Covid continues and further fiscal stimulus is uncertain.”

The firm set aside $769m  in loan-loss provisions in the three months ended September 30, less than the $1.65bn analysts had forecast. CFO John Shrewsberry said in September that the firm was not expecting losses to be worse, but cautioned that “it’s hard to know whether they’re going to be better or just further out in the future”.

At the end of the quarter, the bank had $20.5bn set aside for credit losses. Unsecured loans rose 5.5% from the second quarter, largely driven by consumer mortgages.

Wells Fargo shares fell 2.9% to $24.03 in New York. They have declined 55% in 2020, more than the 31% drop in the KBW Bank Index.

Rivals Goldman Sachs, JPMorgan Chase and Citigroup, which reported their third-quarter results on Tuesday and Wednesday, set aside lower loan loss provisions in the period, partly because they had already been aggressive in beefing up their reserves in the first half of the year.

Wells Fargo’s non-interest expenses climbed by $30m from a year earlier to $15.2bn. The bank is working to dramatically reduce costs and has started workforce reductions that could ultimately number in the tens of thousands. Wells Fargo had 274,900 employees from September 30, down from 276,000 at midyear.

The firm is still under a costly Federal Reserve-imposed cap limiting assets to $1.95-trillion. The restriction bit harder this year, constraining Wells Fargo’s ability to finance clients and react to the changing economic environment. It also put limits on the bank offsetting lower rates with growth, resulting in a sharp decline in net interest income. Wells Fargo reported $1.92-trillion in assets at the end of the third quarter, down from $1.97-trillion from June 30.

“The Fed’s asset cap is making an already challenging environment even more difficult for Wells,” Kyle Sanders, an Edward Jones analyst, said in a note Wednesday. “In response, we anticipate Wells will focus on drastically reducing expenses to improve profitability. In our view, there is a tremendous opportunity to lower the company’s cost base and improve productivity.”

Also in Wells Fargo’s third-quarter results:

  • Revenue fell to $18.9bn, beating analysts’ estimates of $17.95bn.
  • The bank’s efficiency ratio, a measure of profitability, improved slightly to 80.7% from 81.6% in the second quarter.
  • Net interest income fell 19% from a year earlier to $9.39bn. 

Bloomberg

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