SAN FRANCISCO >> Wells Fargo posted second-quarter profits that topped Wall Street’s expectations, but the bank’s shares tumbled Friday because revenue fell short of forecasts.
By some measures, it’s possible Wells Fargo is beginning to turn the corner in the wake of a scandal related to up to 2.1 million bogus accounts that bank employees opened without the permission of customers. Customer loyalty and satisfaction scores during the April-through-June quarter rose to levels that exceeded scores recorded prior to the September 2016 disclosure of the scandal.
The banking giant earned $5.81 billion for its quarter that ended in June, up 4.5 percent from the year-ago quarter.
Revenue totaled $22.17 billion, up 0.3 percent.
“We remain committed to reducing expenses and improving the efficiency of our company, and we are very focused on our recently announced goals,” said Timothy Sloan, Wells Fargo’s chief executive officer.
Per-share profits were $1.07, well ahead of Wall Street’s projections of $1.01. However, revenue failed to meet expectations of $22.47 billion.
“Overall results were solid in a period with continued modest economic growth,” said John Shrewsberry, the bank’s chief financial officer.
Wells Fargo’s stock fell 1.4 percent Friday.
The fake accounts scandal has triggered criminal, regulatory and congressional probes and led to the ouster of the bank’s former CEO John Stumpf and Carrie Tolstedt, the executive who ran the retail banking unit that was at the center of the web of deceit. Wells also terminated 5,300 workers.
The debacle tarnished the bank’s reputation, but its public perception may have since rallied a bit. With more than 400,000 branch customer experience surveys completed during the second quarter, “Overall Satisfaction with Most Recent Visit” and “Loyalty” scores in June reached their highest levels since August 2016.
The scandal surfaced on Sept. 8, when Wells Fargo agreed to pay $185 million in fines in a settlement with multiple government agencies.
San Francisco-based Wells Fargo closed 54 branches during the second quarter and had 5,977 branches at the end of June, the bank said Friday.
In May, the bank promised investors at a conference that it planned to close 450 branches by the end of 2018, part of a quest to chop expenses by $4 billion during the same time frame in 2017 and 2018.
“We are on track to close 200 branches this year,” Mary Mack, senior executive vice president and head of community banking, said during the investors conference. “And we are on track to close 200, 250 next year.”
However, by one crucial measure of the bank’s cost-cutting efforts, Wells Fargo appears to have fallen short of its own goals. Costs are rising, and the bank’s efficiency ratio didn’t meet the bank’s internal targets.
Costs are measured by non-interest expenses that totaled $13.54 billion at the end of June, up 5.2 percent from the prior year. The bank’s efficiency ratio as measured by the ratio of expenses to revenue was 61.1 percent at the end of June, up from 58.1 percent a year ago. It was also worse than the target of 60 percent to 61 percent that Wells set during the investors conference.
“If management believes the fallout from the scandal is behind the bank, that is wishful thinking,” said Ken Thomas, a Miami-based independent banking analyst. “This is not over, and the bank still faces much more uncertainty.”
