NEW YORK -- Wells Fargo's profits took a beating in the third quarter, falling 18 percent, after the bank had to set aside about $1 billion for legal expenses related to its mortgage practices before the financial crisis.
Wells Fargo's Friday report came at a time when the San Francisco-based bank is trying to move beyond its phony-account scandal from last year and another more recent scandal tied to its car-loan business.
The bank said Friday that it earned $4.6 billion in the third quarter, or 84 cents a share, down from $5.64 billion, or $1.03 a share, in the same period a year earlier. The bank's results missed the forecasts of Wall Street analysts, who were expecting the bank to post a profit of $1.02 a share, according to FactSet.
Investors, who saw Wells' rivals report better-than-expected earnings this week, sold the stock. Shares fell $1.52, or 2.8 percent, to close Friday at $53.69.
Wells Fargo's expenses jumped in the quarter, mostly because of the additional $1 billion set aside for previously disclosed investigations into its mortgage practices.
Wells has been trying to move beyond the recent problems that have affected what once was considered one of the banking industry's most beloved brands. The bank has acknowledged that its employees, fueled by unrealistic sales goals, opened as many as 3.5 million bank accounts without customers' permission.
The company also admitted that it sold auto insurance to loan customers who did not need it, and a significant number of those customers were unable to afford both their auto loan and the insurance, which resulted in those vehicles being repossessed.
Wells Fargo Chief Executive Officer Tim Sloan appeared before a congressional committee earlier this month and faced criticism from members of both political parties.
Under the weight of those scandals, Wells Fargo's community banking division appears to have struggled. Wells Fargo's community banking division had net income of $2.23 billion, compared with $3.23 billion in the same period a year earlier.
Most of that drop was tied to the legal expenses, but the division's revenue declined and so did its number of loans. In comparison, Bank of America, Citigroup and JPMorgan Chase all grew revenue and loans in their consumer banking businesses. Wells said the decline was affected in part by a drop in mortgage banking revenue.
Wells Fargo's return on equity, which is a measure of how well a bank is performing with the assets it has, also took a tumble in the third quarter, to 9.06 percent from 11.6 percent. Wells Fargo for years had one of the highest and steadiest returns on common equity, but that was before the sales practice scandals.
Quarterly revenue was $21.9 billion, which missed analysts' forecasts of $22.38 billion.
By comparison, Bank of America's third-quarter profits jumped 13 percent, the bank said Friday, helped by higher interest rates and an increase in lending.
The Charlotte-based bank said it earned $5.59 billion in the third quarter, or 48 cents per share, compared with $4.96 billion, or 41 cents per share, in the same period a year ago. The results beat the expectations of Wall Street analysts, who expected a profit of 46 cents per share, according to FactSet.
Bank of America's consumer banking division had a solid quarter, reflecting the upward trend in interest rates in the past year, which has allowed banks to charge more to borrowers. Net interest income was up 9 percent. The bank also increased its number of loans outstanding, which brought in additional interest income.
Like JPMorgan Chase and Citigroup, which reported their quarterly results on Thursday, Bank of America saw a slowdown on its trading desks, which hurt the results of its investment banking division. Sales and trading revenue fell 13 percent year-over-year, with that decline being primarily tied to a drop in trading revenue for its fixed income, currencies and commodities desks.
Also like those two competitors, Bank of America had to set aside some additional money to cover soured credit card loans. Delinquencies in credit cards have been trending upward in the past several quarters, despite the low unemployment rate, and most banks have had to provision more money for potential losses.
Along with growing revenue through higher interest rates, Bank of America was able to cut its expenses. Since the financial crisis, Bank of America has been implementing a turnaround plan that has started to pay dividends for management. Bank of America's efficiency ratio, which is how much a bank spends on overhead to do business, decreased to 60 percent from 62 percent a year earlier.
Quarterly revenue across the company reached $22.83 billion, which also beat analysts' forecasts of $22.02 billion.
Bank of America shares rose 38 cents, or 1.5 percent, to close Friday at $25.83.
Business on 10/14/2017