Pedestrians pass in front of a Wells Fargo bank branch in New York, U.S., on Wednesday, Jan. 11, 2017.
Photograph by Victor J. Blue — Bloomberg via Getty Images

It will close more than 400 branches, and that's not the end of it.

By Jen Wieczner
January 13, 2017

The first real indications of how Wells Fargo’s phony accounts scandal is impacting its business are in, and they aren’t pretty.

Wells Fargo wfc reported financial results Friday from the fourth quarter of 2016, the first complete period since the bank’s employees were caught opening millions of fake accounts for unwitting customers. After eliminating aggressive sales quotas that were blamed for the fraudulent behavior, Wells Fargo is now struggling to attract new business and grow revenue. The bank said it plans to close at least 400 branches by the end of 2018—a departure from the past several years in which it rapidly opened new locations even as other banks shuttered their own.

There were signs that the sham account scandal had scared potential customers away from Wells Fargo, according to metrics the company reported along with its financial earnings. The number of new checking accounts opened at the bank in December plummeted 40% from a year earlier, and that’s after falling 44% in November. Applications for Wells Fargo credit cards also declined 43% in December year over year.

In Wells Fargo’s community banking unit—the retail division in which the scandal took place—quarterly revenues declined 5% while profits sank 14% compared to the same period in 2015. While the bank’s new CEO Tim Sloan said the impact of the scandal itself on Wells Fargo’s revenue “has not been significant,” he acknowledged that if the slowdown in customer account growth were to continue at the current rate, “that would have a bigger impact.”

For the first time, Wells Fargo also put specific figures on how much the fallout from the fake accounts fiasco is costing it in legal fees and other expenses. The bank expects to spend an additional $40 million to $50 million per quarter this year on lawyers as well as on other third parties it is commissioning—in some cases at the mandate of government regulators—to conduct independent reviews of its sales practices. That spending “probably grows a little bit” throughout the year before it subsides, Wells Fargo CFO John Shrewsberry said on a conference call with analysts Friday.

The good news for the bank: Even at the high end, those cost estimates are far lower than analysts and Wells Fargo itself had initially anticipated. If Wells Fargo spent a total of $200 million on legal expenses in 2017, that would still be a fraction of the $1.7 billion in extra litigation costs that the bank had previously warned it might incur. Still, it’s unclear if Wells Fargo will face future lawsuits or government charges relating to the scandal.

Overall, the bank’s fourth-quarter revenue held steady at $21.6 billion, but its profits for the period declined almost 6% to $5.3 billion. For the full year 2016, Wells Fargo reported revenues of $88.3 billion, a 3% increase, with profits of $21.9 billion, down more than 4% from 2015. Wells Fargo stock rose 1.5% for the day on Friday.

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