SAN FRANCISCO >> Wells Fargo’s profits slumped during the final three months of 2016 in the wake of a scandal over bogus accounts, and new checking account openings plunged in December, the bank said Friday.
The banking giant earned $5.27 billion in the fourth quarter that ended Dec. 31, down 5.6 percent from profits of $5.58 billion in the year ago fourth quarter, Wells reported. The year-end period was the first full quarter following the revelation of the account fraud at the bank.
“We continued to make progress in the fourth quarter in rebuilding the trust of our customers, team members and other key stakeholders,” said Timothy Sloan, Wells Fargo’s chief executive officer.
Still, customers appear skeptical.
The opening of new consumer checking accounts plummeted 40 percent in December compared to the same month a year ago, Wells Fargo reported. Applications for new credit card accounts plunged 43 percent in December from the year before.
“The last few months of the year were certainly challenging,” Sloan said during a conference call with analysts Friday.
Bank relations with customers have improved recently. Customer loyalty scores rose in December compared with November, but were still down from December 2015. Fewer checking accounts were closed. Branch interactions in December were up 11 percent from November, but down 6 percent from December 2015.
Per-share profits totaled 96 cents. Analysts had predicted $1 a share. Revenue totaled $21.58 billion, down slightly from the prior year.
“Wells Fargo is seeing a revenue hit from its sales practices scandal,” Cathy Seifert, an analyst with CFRA Research, stated in a note Friday. “While it is taking numerous steps to overcome this issue, we think near term results may lag peers.”
“Wells Fargo had solid underlying performance in the fourth quarter as we continued to benefit from our diversified business model,” said John Shrewsberry, the bank’s chief financial officer.
Profits were undermined, in part, by “hedge ineffectiveness,” a method of protection against swings in interest rates. Wells estimated the hedge erased 7 cents a share in profits.
Wells Fargo’s mortgage business stumbled, chalking up a $1.42 billion fourth quarter profit. That was down 14.6 percent from a year ago.
On Sept. 8, Wells Fargo was fined $185 million in connection with the fraudulent opening of up to 2 million bogus checking and credit accounts.
“Additional inquiries, fines, and lawsuits will materialize from recent events, creating uncertainty around future financial results and capital deployment plans,” David Long, an analyst with investment firm Raymond James, said in research note Friday.
The community banking division, which presided over the account fraud, suffered a steep profit decline. The unit during the fourth quarter earned $2.73 billion, down 13.8 percent from the year-ago quarter, and down 15.3 percent from the third quarter.
Wells said it’s made progress in customer remediation, reviews of sales practices, and fulfilling regulatory requirements. The bank has launched a new compensation structure for its retail workers. The company has also hired an independent consultant to review sales practices.
Customers can expect fewer Wells branches. The bank reported it closed 84 branches in 2016 and will shut 200 branches in 2017.
JPMorgan Chase and Bank of America, two big local rivals of Wells Fargo, posted higher fourth-quarter profits. Chase earned $6.73 billion, up 24 percent from the year before. Bank of America earned $4.34 billion, up 47 percent.
San Francisco-based Wells rose 1 percent, Chase gained 0.4 percent and B of A was up 0.3 percent in late-session trades.
“We have accomplished a lot over the last few months, but we understand we have more work to do,” Sloan said during the conference call.
