The initial price tag barely made a dent in its quarterly profits. In September 2016, Wells Fargo agreed to pay $190 million to resolve charges that its employees opened as many as 2 million fraudulent customer accounts.

But 16 months later, the assortment of costs that can be traced back to the bank’s fake-accounts scandal continue to mount. And shareholders are growing impatient with management’s unwillingness to promise that it has its arms fully around the regulatory problems.

On Friday, the San Francisco bank said that it is setting aside an additional $3.25 billion to cover a variety of litigation matters, including the ongoing sales scandal. Just three months earlier, Wells announced a $1 billion litigation accrual.

Wells is expected to get hit with fines related to improper customer charges in its auto insurance and mortgage businesses — both issues that emerged in the aftermath of the bogus-accounts scandal, and were likely uncovered because the bank was under closer scrutiny. The company is also expected to open its checkbook in connection with litigation involving residential mortgage-backed securities that resulted in investor losses, an issue that dates back to the 2000s.

During the company’s fourth-quarter earnings call Friday, Deutsche Bank analyst Matt O’Connor pressed Wells Fargo CEO Tim Sloan about whether the company’s legal and regulatory problems have all been disclosed.

Sloan has been with the $1.95 trillion-asset bank since the 1980s, and O’Connor suggested that after more than a year as CEO, Sloan should be able to identify any business practices that need to be fixed.

Tim Sloan, chief executive officer and president of Wells Fargo, arrives to testify before a Senate Banking, Housing and Urban Affairs Committee hearing in Washington.
CEO Tim Sloan said he could not promise that all of Wells Fargo's lingering problems have been uncovered. Bloomberg News

Sloan said that Wells Fargo has made a lot of progress, but he declined to promise that all of its lingering problems have been uncovered. “I’d love to live in a world where I can give an absolute guarantee and certainty, but it’s just not the world we live in,” Sloan said.

“Maybe someday I will,” he added, “but I think it’s going to be something we look at in the rearview mirror over a longer period of time, as opposed to having some inflection today or tomorrow or the week after that.”

Wells Fargo’s unexpectedly large litigation accrual in the fourth quarter largely offset a $3.35 billion benefit from the tax overhaul recently signed by President Trump.

The company reported net income of $6.2 billion, but its fourth-quarter earnings were boosted by several one-time factors, and analysts were disappointed by its operating performance. Shares in Wells Fargo fell 0.8% in Friday, while the broader stock market recorded gains.

One area of concern was Wells Fargo’s lending performance during the fourth quarter. The company’s average loans outstanding fell to $951.8 billion, down 1% from the same period a year earlier. That made for an unfavorable comparison with JPMorgan Chase, which reported Friday that its average core loans were up 6% year over year.

“Loan growth definitely seems to still be sluggish,” John Mackerey, an analyst at DBRS, said regarding Wells Fargo.

The weak lending performance is partly attributable to the company’s decision to give up market share in automobile and commercial real estate lending — two overheated markets, in the view of Wells executives. But lending activity has also been hurt by internal changes that Wells Fargo made in response to the sales scandal, Chief Financial Officer John Shrewsberry acknowledged.

Average loans in Wells Fargo’s retail banking unit were down 3% in the fourth quarter compared with the same period in 2016. Wells reorganized that unit in the wake of the scandal — for example, overhauling an incentive compensation scheme that was widely blamed for the fraudulent account openings.

Shrewsberry said in an interview Friday that the changes have hurt loan referrals, since employees have been unsure about how aggressive to be. He added that the problem is subsiding over time.

Wells is also taking a financial hit from efforts it has undertaken to win over consumers whose opinion of the bank soured. In November, Wells Fargo introduced a feature called Overdraft Rewind, which waives overdraft fees in situations where the bank receives a direct deposit that is large enough to cover the transaction by the following morning.

Shrewsberry estimated that during the first quarter, Overdraft Rewind will reduce fee income by roughly $40 million. That number could go up or down in future quarters, depending on how consumers change their behavior in response to the program.

The news on Friday was not all bad for Wells, with credit performance being among the bright spots. The bank reported that net chargeoffs were 0.31% of average loans during the fourth quarter, down from 0.37% in the same period the year before. Wells made a $100 million reserve release during the last three months of 2017.

Still, fallout from the sales scandal continues to dog the megabank. One nagging question is whether Wells Fargo will be able to resolve the various outstanding probes simply by writing checks, or whether regulators will also demand that the bank make changes to its conduct.

“It’s very hard to say,” Shrewsberry stated. “It’s a very reasonable question, but it’s hard to know.”

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.