Wells Fargo CEO Charlie Scharf kicks off tenure with more legal costs
Wells Fargo & Co. may have a new leader, but the work of reinvigorating the firm after years of troubles is far from over.
In Charlie Scharf’s first quarter at the helm, Wells Fargo reported $1.5 billion in expenses for litigation as the lender works through its problems, the second straight quarter where earnings were hit by major legal costs. That drove a 53% drop in net income from a year earlier, missing analysts’ estimates.
“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Scharf, the company’s new chief executive, said in a statement Tuesday.
The San Francisco-based firm’s longer-term strategy has been in flux since former CEO Tim Sloan stepped down in March. Scharf, who took over in October following a six-month search, has been conducting a wide-ranging review of the firm, and investors are keen to learn his conclusions. Colleagues have said his top priority is fixing relations with regulators. The bank still faces a bevy of probes and consent orders, including a Federal Reserve-imposed cap on asset growth.
Net interest income, Wells Fargo’s biggest source of revenue, fell 11.4% to $11.2 billion in the quarter. Analysts predicted an 11.1% decline as lower rates continue to hit results. Revenue fell 5.3% to $19.9 billion, missing analysts’ estimates of a 4.3% decline.
Noninterest expenses climbed 17% to $15.6 billion. Executives have said costs are likely to remain elevated through 2020 as the lender works through its myriad legal and regulatory issues.
Net income totaled 93 cents a share in the fourth quarter, excluding the legal costs, less than the $1.14-a-share average estimate of 11 analysts in a Bloomberg survey.
Wells Fargo shares fell 2.4% to $50.85 at 8:06 a.m. in New York. Analysts have issued a flurry of downgrades on the stock in recent weeks, pushing their collective outlook to the worst since the financial crisis. The stock has climbed 7.6% in the past year, compared with a 22% increase for the 24-company KBW Bank Index.
More about Wells Fargo’s fourth-quarter results:
- The bank’s efficiency ratio, a measure of profitability, worsened to 78.6% from 69.1% in the third quarter. The firm had been targeting 55% to 59% in the long term, excluding litigation costs, though Scharf may set a different goal.
- Period-end loans and deposits both increased from a year ago, and the number of primary consumer checking customers rose for the ninth consecutive quarter.