(Reuters) – Wells Fargo & Co (WFC.N) reported lower profits on Tuesday as the bank braced for additional legal expenses tied to a scandal that erupted more than three years ago.
FILE PHOTO: A Wells Fargo ATM machine is shown in Los Angeles, California, U.S. October 19, 2018. REUTERS/Mike Blake/File Photo
The fourth-largest U.S. bank by assets set aside $1.6 billion for legal expenses related to previously disclosed sales practices. It has been operating under heavy scrutiny since 2016 revelations that employees opened potentially millions of unauthorized accounts.
The fallout has led to multiple internal and regulatory probes and resulted in billions of dollars in fines over the past three years.
Executives declined to specify the litigation the expected charge is related to.
The largest lingering legal issues include investigations by the Securities and Exchange Commision and the Department of Justice, according to filings.
“We’ll all be happier when it moves through and is behind us,” Chief Financial Officer John Shrewsberry said on a conference call with journalists.
Expenses also have risen since 2016 as the company has reimbursed customers who were overcharged for its services, and as the bank upgraded its technology to meet regulatory requirements in the wake of the scandal. This year the bank said it was hiring thousands of employees to improve its risk management and work through regulatory mandates, which has partially offset cost savings elsewhere in the bank.
Additionally, the bank acknowledged that plans to beef up its mortgage business and add staff to meet a surge in demand would contribute to costs this year. The plans, which Reuters exclusively reported on last week, is a change of course after the bank laid off more than 1,000 employees in the division last year.
Overall for the quarter the company posted falling loan revenue due to lower interest rates, but showed deposit and loan growth, a sign of increased business.
Net interest income fell 7.5% to $11.63 billion and average loans and deposits rose 1.3% and 1.9%, respectively.
Profit fell in Wells Fargo’s retail and commercial banks.
“We have more work ahead, but I’m confident that our focused efforts and the fundamental strengths of Wells Fargo will continue to enable us to achieve success,” Interim Chief Executive Allen Parker said.
Parker will hand over the reins to Bank of New York Mellon CEO Charles Scharf next week.
Net income applicable to common stock fell to $4.04 billion, or 92 cents per share, in the third quarter ended Sept. 30, from $5.45 billion, or $1.13 per share, a year earlier.
Excluding items, the lender earned $1.07 per share, compared to analysts’ consensus of $1.15, according to IBES data from Refinitiv.
Wells Fargo’s provisions for future credit losses jumped 20% to $695 million from a year earlier.
The lender’s shares closed 1.8% higher at $50.14.
Reporting by Noor Zainab Hussain in Bengaluru and Imani Moise in New York; Editing by Sriraj Kalluvila and Richard Chang