WASHINGTON: Wells Fargo & Co on Friday reported a 50% decline in profit for the fourth quarter as the bank racked up more than $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 nearly 4% in premarket trade.
The fourth-largest US lender reported a profit of 67 cents per share for the quarter ended Dec. 31, compared with $1.38 per share a year earlier. On an adjusted basis, the bank earned 61 cents per share, compared with analysts’ estimates of 66 cents per share, according to Refinitiv IBES data.
Provision for credit losses was $957 million in the quarter, compared with a $452 million release a year earlier.
Provision for credit losses in the quarter included a $397 million increase in the allowance for credit losses primarily reflecting loan growth, as well as a less favorable economic environment, the bank said.
Though Wells Fargo’s operating losses were “one-offs” related to litigation and regulatory and customer remediation, its results were disappointing, said Thomas Hayes, chairman and managing member at Great Hill Capital.
“Of the major banks, Wells is the weakest of the reports today. They continue to underwhelm,” he said.
Banks are building up rainy day funds as US Federal Reserve 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. 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.
In December, the US Consumer Financial Protection Bureau hit Wells Fargo with the watchdog’s largest ever civil penalty as part of a $3.7 billion agreement to settle charges over widespread mismanagement of car loans, mortgages and bank accounts.