Wells Fargo posted lower profit in the three months through June than Wall Street expected as revenue sank in its large consumer banking division after a string of settlements with regulators over claims of customer exploitation.
Earnings of 98 cents a share compared with the $1.12 average estimate from analysts. The consumer unit shrank nearly 10 percent to $2.49 billion amid a decline in lending and lower customer satisfaction scores from branch surveys. Many clients moved money from lower-interest accounts to higher-rate investments, Chief Financial Officer John Shrewsberry said.
Wells Fargo CEO Timothy Sloan is working to rebuild the San Francisco-based lender’s reputation, tarnished when the bank disclosed in 2016 that employees had created more than 3.5 million unauthorized accounts to meet ambitious sales quotas. Growth in consumer checking accounts and debit card transactions in the second quarter indicates some success, though regulatory scrutiny remains high.
During the past three months, the bank added a new chief risk officer, made further improvements to compliance procedures and initiated its “Re-established” advertising campaign to promote Sloan’s overhaul during the past two years.
“We continued to transform Wells Fargo into a better, stronger company for our customers, team members, communities and shareholders,” the CEO said in a statement.
Earlier this year, the Federal Reserve slapped size restrictions on Wells Fargo, which it warned in February could curb profits by up to $400 million. The directive requires the San Francisco-based lender to keep its assets at or below the roughly $2 trillion held at the end of December 2017.
At that time, it was the nation’s third-largest bank, behind New York-based JPMorgan Chase and Charlotte, N.C.-based Bank of America. The restrictions have had little impact on growth so far, Shrewsberry said; Wells Fargo can pare less profitable businesses to expand in more lucrative ones.
In April, federal regulators announced a $1 billion settlement over issues in the mortgage- and auto-lending businesses. The government penalized the lender for selling some auto borrowers insurance they didn’t need, under the pretense they might not qualify for the loans otherwise, and for charging fees to mortgage customers that it was supposed to be absorbing.
Companywide, net income fell 11 percent to $5.2 billion, including a $481 million charge that was largely related to the Supreme Court’s decision in South Dakota vs. Wayfair, which lets states impose sales taxes on businesses that don’t have a physical presence there. Revenue slid 2.7 percent to $21.6 billion.
Shares of the San Francisco-based lender fell 1.6 percent to $55.15 in midafternoon trading in New York.
