Wells Fargo said Friday its profits for the last three months of 2017 got a big boost thanks to the new federal tax overhaul. But the bank’s results also show it’s still wrangling with costly legal expenses tied to a sales scandal and other problems.
The bank, which has its largest employment hub is in Charlotte, earned $6.2 billion, or $1.16 a share, compared with $5.3 billion, or 96 cents a share, a year earlier. Revenue was up slightly at $22.1 billion.
Wells said the higher results were helped in part by the tax overhaul passed last month – legislation that slashes the corporate tax rate to its lowest level in about 80 years. The bank attributed $3.3 billion of its profit, or 67 cents of earnings per share, to the legislation’s impacts.
It was a needed lift in a quarter when Wells set aside $3.3 billion for legal expenses tied to the sales scandal as well as issues in other parts of the company. The bank said the funds covered a variety of matters, including mortgage-related regulatory investigations, sales practices and other “consumer-related” issues.
Also Friday, Wells reported financial results for the full year. Helped by the year-end boost from the tax overhaul, the bank said it had $22.2 billion in profit, compared with $21.9 billion in 2016, the year it disclosed employees had been opening unauthorized accounts to meet high-pressure sales goals.
On a conference call with analysts, CEO Tim Sloan called 2017 a transformational year for San Francisco-based Wells as it saw “significant progress on our efforts to build a better bank.” Among other things, he pointed to efforts to enhance customer experience and improve risk management.
“Wells Fargo is a much better company today than we were a year ago,” said Sloan, who took over in October 2016 after chief executive John Stumpf left the company amid mounting fallout from the scandal.
Under Sloan’s watch, the bank has terminated some executives, shaken up management structures and overhauled practices in an effort to right itself.
But under Sloan, Wells has also disclosed problems in other business, such as mortgage lending and auto insurance. Last year, Wells shares had the worst performance among the largest U.S. banks. The stream of revelations has caused investors, lawmakers and others to wonder if announcements about more problems will be forthcoming.
On Friday, Matt O’Connor, an analyst with Deutsche Bank, pressed Sloan on whether Wells had uncovered all of its problems.
“It’s very important to be able to turn the page, whether it’s for the investors (and) the employees, I would think, it’s relevant too,” Matt O’Connor said.
Sloan told the analyst the bank has made a lot of progress in looking at its operations. “But I can’t provide you with a guarantee or absolute assurance that we won’t be making additional changes in the future to anything that we might find,” Sloan said.
Wells Fargo joined New York’s JPMorgan Chase in kicking off bank-earnings season. JPMorgan reported profits fell 37 percent to $4.2 billion after accounting for one-time charges related to the tax legislation, which cuts what companies pay on their profits from 35 percent to 21 percent.
Wells Fargo, in contrast, recorded a benefit from a reduction to its deferred income taxes – or taxes to be paid in the future.
John Mackerey, analyst with DBRS, said in an Observer interview that Wells Fargo is showing continued improvement in loan quality, pointing to decreases in its troubled assets. But loan growth at Wells seems to still be sluggish, he said, noting that JPMorgan reported higher growth Friday.
Also Friday, Chief Executive Officer John Shrewsberry said Wells is on pace to slash $4 billion in expenses through the end of 2019, under a previously announced plan. Those efforts come as Wells remains under investor pressure to improve on a measure showing what it costs the bank to generate one dollar of revenue. Wells has been unable to restore the measure to pre-scandal levels.
As it cuts costs, Wells also continues to trim employment and branches. Overall employment fell by 6,400 last year, to 262,700.
Shrewsberry said the bank last year shed 214 branches, surpassing a target of 200. Wells Fargo plans to cut another 250 branches or more this year and could have 5,000 by the end of 2020, he said, compared with about 5,861 today. Like some other banks, Wells is cutting branches as more customers use smartphones for transactions.
“We will have as many branches as our customers want for as long as they want them,” Shrewsberry said.