In what’s proving to be a year of growth for the biggest U.S. banks, the overhang from Wells Fargo’s scandals is keeping it from joining the party.
Revenue slumped 5% in the fourth quarter, the third drop in the past year and a bigger one than analysts had expected. That dragged Wells Fargo to an annual decline as its major bank peers reported increases.
The lower revenue shows that the bank is still struggling to bounce back from its problems as it also faces a regulatory asset cap. Chief Executive Tim Sloan is trying to turn the bank around following a series of consumer scandals that erupted in 2016 with the revelation that Wells Fargo employees may have opened millions of accounts for customers who didn’t want them.
“It is important to note that Wells Fargo’s revenues were down in all three segments, including community banking, wholesale banking and wealth management,” Octavio Marenzi, CEO of the capital markets management consultancy Opimas LLC, said in a note. “Very tight cost discipline and a lower tax rate allowed the bank to see only a small erosion in net income.”
Total average loans sank 1%, driven by a decline in consumer lending, while average deposits fell 3%. Meanwhile, Citigroup and JPMorgan Chase showed growth in both metrics in the fourth quarter. The drop in Wells Fargo’s deposits included $1.8 billion associated with the sale of 52 branches in the U.S. Midwest that closed in the fourth quarter.
Provisions for bad loans fell 20%, the ninth consecutive quarterly decline and a sign of strength in the economy even amid rising rates and turbulent markets.
Fees from mortgage banking, which drove Wells Fargo to record profits a few years ago, fell by half from a year earlier, reflecting heightened competition and a shift from refinancing to loan origination as rates rise. Mortgage woes are common across the industry; fees from mortgage banking at JPMorgan also fell by nearly 50% in the fourth quarter.
Other key results:
- Net income fell to $6.1 billion, or $1.21 a share, beating the $1.19-a-share average estimate of 27 analysts in a Bloomberg survey.
- The bank’s efficiency ratio, a measure of profitability, worsened slightly in the quarter and ended the year at 65 percent. Wells Fargo has faced increased costs in recent years, the result of regulatory fines and legal expenses stemming from customer abuses. Sloan is targeting a 55 percent to 59 percent ratio in the long term, excluding litigation costs, and has promised $4 billion in cost reductions by the end of 2019.
- Net interest margin, the difference between what a bank charges borrowers and pays depositors, stayed flat at 2.94 percent; analysts expected a slight increase.
