Wells Fargo’s Phony Account Scandal Barely Dents Earning
As the bank predicted, Wells Fargo’s bottom line is weathering its biggest scandal in years just fine.
On Friday, the bank reported that its earnings were down slightly from a year ago, but it was still better than analysts had been expecting.
The Numbers: The nation’s second most valuable bank earned $5.6 billion, or just over $93 million per business day, in the third quarter of 2016. That translates to an earnings per share of $1.03. That was down from a year ago, but it was still three cents per share better than analysts were expecting. The better than expected earnings were driven by a rare, for banks these days, increase in earnings. Sales at Wells Fargo were up 2% to $22.3 billion.
Why it Matters: Wells Fargo last month agree to pay a $185 million fine for defrauding customers, opening up roughly 2 million accounts without customers’ permission. Earlier this week, the bank’s CEO John Stumpf said he was leaving the bank immediately. The fine itself is not very big compared to Wells Fargo’s bottom line. But the real question is whether customers will now shift their business else where. And whether the halting of cross selling, which in part led to the problems at Wells Fargo, will hurt the bank’s sales and earnings?
The answer so far: It doesn’t seem to have hurt. Revenue was up. Deposits were also up. And at least for now there doesn’t seem to be any earnings hit from the bad press. However, the scandal only broke in the last month of the quarter, so it could be too early to tell. The bank did reiterate that it eliminated sales goals, and that it was clawing back unvested options from both Carrie Toldstedt, the former head of its consumer banking unit, and former CEO John Stumpf. And that it’s expenses reflected a higher legal expense, but was hard to see where.
Shares of Wells Fargo (WFC) were up slightly in pre-market trading.
What You May Have Missed: If you are worried about the economy, there was something to cheer in Wells Fargo’s earnings announcement. Loan growth rose $62 billion or 7% from a year ago. What’s more, the percentage of loans that are not getting paid back remain very low. Wells Fargo said it charged off just 0.33% of its loans in the third quarter, up slightly from a year ago, but still very low. People are borrowing and paying on time. Phony accounts aside, that’s good news.