Wells Fargo profit falls 50% on higher reserves, costs

WELLS Fargo on Friday (Jan 13) reported a 50 per cent decline in profit for the fourth quarter as the bank racked up more than US$3 billion in costs related to a fake accounts scandal and boosted loan loss reserves for a potential economic slowdown.

The bank’s shares were down 2.6 per cent in premarket trade.

Provision for credit losses was US$957 million in the quarter, compared with a US$452 million release a year earlier.

Provision for credit losses in the quarter included a US$397 million increase in the allowance for credit losses primarily reflecting loan growth, as well as a less favorable economic environment, the bank said.

Banks are building up rainy day funds as US Federal Reserve (Fed) policymakers decide on the future path of interest rates.

After aggressively raising interest rates in an attempt to bring soaring inflation to heel, Fed policymakers say they are encouraged by the recent slowing in jobs and wage growth that could temper inflation.

The outlook for big US banks has been further clouded by the Russia-Ukraine conflict and fading stimulus measures. Higher borrowing costs have also softened demand for mortgages and car loans, crimping banks’ revenues.

Meanwhile, a slump in dealmaking has weighed on banks’ investment banking businesses, which had a blockbuster 2021.

Wells Fargo is still working to contain the fallout from a six-year-old scandal over its sales practices that led to hefty fines and an asset cap imposed by the Fed on the lender’s ability to expand its balance sheet.

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Overall, non-interest expenses rose to US$16.2 billion from US$13.2 billion a year earlier.

In the fourth quarter, the bank posted US$3.3 billion in operating losses related to litigation, customer remediation and regulatory matters associated with the scandal over its sales practices.

The fourth-largest US lender reported a profit of 67 cents per share for the quarter ended Dec 31, compared with US$1.38 per share a year earlier.

Chief executive officer Charlie Scharf is working on fixing the bank’s problems after it spent billions on lawsuits and regulatory fines.

As part of his turnaround plan, Scharf aims to cut costs, scale back Wells Fargo’s huge mortgage business and expand its investment banking business.

“While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we have made significant progress, and are moving forward,” Scharf said.

Wells Fargo has struggled over the past few years to satisfy regulators that it has fixed its problems and repaid customers who were harmed by its aggressive sales practices.

The company’s net-interest income rose 45 per cent to US$13.4 billion in the quarter.

Wells Fargo’s total revenue fell to US$19.7 billion from US$20.9 billion a year earlier. REUTERS