Wells Fargo & Co. continued to disappoint investors with its earnings report released early Friday, but it still kept its sales people happy, as commissions and incentive pay increased while profit and revenue fell below expectations.
The stock WFC, -0.89% tumbled as much as 4.3% intraday, before paring losses to trade down 0.9% in afternoon trade. That puts the stock on track to decline on the day earnings were reported for the sixth-straight quarter, as well as for 11 of the past 12 quarters and 15 of the past 17.
Wells Fargo reported before Friday’s open second-quarter net earnings that fell to $5.19 billion, or 98 cents a share, from $5.86 billion, or $1.08 a share, in the same period a year ago, missing the FactSet consensus of $1.12 a share. Total revenue declined 2% to $21.55 billion, below the FactSet consensus of $21.68 billion. Read more about Wells Fargo’s results.
Net interest income rose 1% to $12.54 billion, mostly in line with the FactSet consensus of $12.55 billion, while non-interest income dropped 8% to $9.01 billion to below expectations of $9.21 billion.
While non-interest income fell, expenses rose 3%, as salaries increased 3% to $4.47 billion and commission and incentive compensation jumped 6% to $2.64 billion.
J.P. Gravitt, chief executive officer and head of research at independent market research company Market Realist, said one reason compensation keeps rising even though business is declining is that Wells Fargo still has a perception problem, not just with borrowers and investors, but also its own employees.
“What they’re having to do as a company, they’re having to work much harder to get business,” Gravitt said, “and they’re trying harder to retain good people.”
Wells Fargo has had a perception problem since the bank’s sales practice scandal surfaced two years ago and revealed that the bank had opened millions of unauthorized accounts, fueled by an incentive structure that included daily sales quotas and aggressive account-opening targets. Investigations that followed led to the Federal Reserve forcing the bank to oust board members and limit its growth.
Also read: Fed says Wells Fargo isn’t allowed to grow after wave of scandals.
The stock has lost 8.5% year to date and 0.1% over the past 12 months. In comparison, the SPDR Financial Select Sector exchange-traded fund XLF, -0.52% gained 7.7% over the past 12 months and the S&P 500 index SPX, +0.09% climbed 14%.