Wells Fargo’s profit for the fourth quarter came in ahead of Wall Street’s targets but were about half of what it earned last year as the bank had to pay another $3.3 billion in fines and penalties to settle numerous scandals from recent years.
Wells earned $2.86 billion, or 67 cents per share, in the the last quarter of 2022. Analysts were expecting a profit of 60 cents per share. Last year, the bank earned $5.75 billion in the fourth quarter, or $1.38 per share.
Revenue of $19.66 billion fell short of Wall Street’s projections of $20 billion as well as the $20.86 billion logged in the same quarter last year.
Wells said the losses related to the regulatory matters were equal to about 70 cents per share.
The San Francisco-based bank also set aside an additional $397 million for its loan loss reserves in preparation for a potential economic downturn, which many economists are predicting as the Federal Reserve continues its aggressive rate hikes and monetary policy tightening to try to bring down inflation.
“We’re planning for it to get worse than it’s been over the past few quarters,” said Mike Santomassimo, Wells’ chief financial officer.
Wells, which until recently was the biggest U.S. mortgage lender, said earlier this week it plans to drastically reduce its mortgage lending business. Wells said it is ending its correspondent lending business and reducing the size of its loan servicing portfolio to focus on its existing customers and expand its reach in underserved communities. Wells also introduced a handful of new credit card products last year and said it plans to roll out more in 2023.
Wells notched $13.4 billion in net interest income in the period, easily topping the $9.3 billion from the same period a year ago.
Wells, like other banks, has benefitted from the Federal Reserve’s aggressive interest rate hikes as the central bank tries to tamp down the highest inflation in four decades. Though there have been signs that inflation is easing, Fed officials have signaled that they may raise the central bank’s main borrowing rate another three-quarters of a point in 2023, which would bring it to a range of 5% to 5.25%.
Wells is still trying to exit the strict federal guidelines imposed in 2018 that sets its asset cap at just under $2 billion after a series of scandals, including the uncovering of millions of fake checking accounts its employees opened to meet sales quotas. That order was expected to last only a year or two, but additional scandals have surfaced and regulators have been skeptical about the bank’s efforts to clean up its act.
Just last month, Wells agreed to pay $3.7 billion to settle charges that it harmed customers by charging illegal fees and interest on auto loans and mortgages, as well as incorrectly applying overdraft fees against savings and checking accounts.
Wells was ordered to repay $2 billion to consumers by the Consumer Financial Protection Bureau, which also enacted a $1.7 billion penalty against the San Francisco bank. It’s the largest fine ever leveled against a bank by the CFPB and the largest yet against Wells.
U.S. regulators found that in 2016, Wells employees opened millions of accounts illegally in order to meet unrealistic sales goals. Since then, executives have repeatedly said Wells is cleaning up its act, only for the bank to be found in violation of other parts of consumer protection law, including in its auto and mortgage lending businesses.
Shares in Well Fargo rose 3.3% to close at $44.22.