(Reuters) – Wells Fargo & Co’s (WFC.N) profit slumped 55% in the fourth quarter as new boss Charles Scharf set aside another $1.5 billion for legal costs related to the bank’s sales scandal and promised “fundamental changes”.
FILE PHOTO: A Wells Fargo logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren
Wells, the United States’ biggest mortgage lender, has leaned on cost cuts to stabilize its bottom line amid sluggish revenue growth and a raft of fines and costs relating to illegal sales practices first uncovered in 2016.
Lowering costs were a cornerstone of former Chief Executive Officer Tim Sloan’s recovery plan, but the bank acknowledged in October that plans to beef up its mortgage business and add staff would contribute to costs in 2019.
As part of compliance efforts to woo regulators, the bank has also hired thousands of employees to its risk management teams and Tuesday’s results showed it racked up operational losses of $1.9 billion in the final quarter of last year.
Employee benefit expenses doubled from a year earlier. Scharf said the bank’s cost structure was simply too high, while also recommitting to beefing up its approach to regulation.
“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Scharf said in a statement.
“During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve,” he said.
Shares in Wells, the fourth-largest U.S. bank by assets, fell about 3% to $50.50.
Wells is operating under heavy scrutiny, including an unprecedented cap on its balance sheet by the Federal Reserve, as it tries to rebuild its reputation since it was revealed that the bank had opened potentially millions of bogus accounts.
The San Francisco-based bank last year appointed Scharf, a one-time protégé of JPMorgan (JPM.N) CEO Jamie Dimon, as its new chief executive officer in the hope he could help it rebuild its reputation with customers, investors and regulators.
Net income applicable to common stock fell to $2.55 billion, or 60 cents per share, in the fourth-quarter ended Dec. 31, from $5.71 billion, or $1.21 per share, a year earlier.
The bank’s net interest income fell 11% from a year earlier as the U.S. central bank lowered borrowing costs three times last year in a bid to sustain the more than decade-long economic expansion amid the prolonged U.S.-China trade war.
The lender’s mortgage income, however, rose to $783 million from $467 million a year earlier, benefiting from the lower interest rates.
Mortgage applications have increased in most weeks since the Fed began reducing rates, according to a Mortgage Bankers Association index.
The bank’s efficiency ratio was 78.6%, compared with 63.6% a year earlier. The ratio measures non-interest expenses as a percentage of revenue.
Wells Fargo continued to add deposits in the most recent quarter and interest expense linked to deposits jumped 17%.
Reporting by Noor Zainab Hussain in Bangalore and Imani Moise in New York; Editing by Sriraj Kalluvila