Wells Fargo’s slump in the wake of its year-long sales scandal is deepening.
The bank reported disappointing profits on Friday, bucking the trend set by its biggest competitors. The state of Ohio decided this week to extend a ban on working with the bank, and lawmakers are questioning whether Wells Fargo has paid a big enough price for its misdeeds.
Wells Fargo was already dethroned as the world’s most valuable bank after the scandal hit, but now it is slipping further behind. Its profits fell nearly 19 percent to $4.57 billion during the third quarter, compared with $5.64 billion during the same period last year, the company said Friday. Revenue fell 2 percent to $2.1 billion.
And Wall Street isn’t happy: The company’s stock price fell about 3.4 percent in afternoon trading Friday and is now down more than 2 percent so far this year. While not a significant loss, it is striking when compared to the bank’s competitors. JPMorgan Chase and Bank of America’s stock prices are up 12 percent and 17 percent, respectively, during the same period, and both reported profits and revenue this week that beat analysts’ expectations.
“We are waiting for the quarter that Wells shows stronger momentum across the business, and this was not the quarter,” Brian Kleinhanz of investment banking and security brokerage firm Keefe, Bruyette & Woods, said in a research note.
Amid the disappointing earnings report, Wells Fargo chief executive Timothy J. Sloan said the bank is making progress in key areas, but he acknowledged its continuing struggles. “Over the past year we have made fundamental changes to transform Wells Fargo as part of our effort to rebuild trust and build a better bank,” Sloan said in a statement.
Part of what weighed down the bank during the third quarter dated back to the financial crisis era. Wells Fargo set aside $1 billion to settle an investigation into its pre-crisis mortgage lending practices. But many of its problems stem from its admission last year that it had opened millions of sham accounts that customers didn’t ask for. Some customers ended up charged with overdraft and other fees that harmed their credit scores. The bank faced an immediate backlash on Capitol Hill, forcing longtime CEO John Stumpf to resign and some senior executives to give up millions of dollars in bonuses.
The bank’s community banking division, where the sales scandal arose, remains a trouble spot. Profits in the unit, which generates 60 percent of Wells Fargo’s profit, fell 31 percent to $2.23 billion during the quarter, compared with 3.2 billion during the same period last year.
“We believe the consumer bank will be a drag on performance well into 2018 from prior aggressive sales tactics,” Kenneth Leon, equity analyst at CFRA Research, said in a research note Friday.
Meanwhile, Wells Fargo is struggling to satisfy its critics. It drew more criticism recently after it revealed that the creation of fake accounts had gone on far longer than it had first acknowledged. Now the bank says employees created up to 3.5 million fake accounts, rather than the 2 million it reported earlier. The bank also said that, for six years, about 570,000 of its customers were charged for auto insurance they didn’t need, driving some to default on their loans and watch their cars be repossessed.
Sen. Elizabeth Warren (D-Mass.), a longtime critic of Wall Street, is now calling for the company’s entire board of directors to be removed, and other Democrats on Capitol Hill have questioned whether its banking charter should be reviewed. Warren told Sloan, the bank’s chief executive, during a tense hearing last month that he should be fired.
Wells Fargo is also facing a similar struggle as it tries to prove to cities and states where it operates that it has reformed itself. Ohio, which stopped work with the bank last year, announced this week that it would extend its ban for at least another six months. “This bank has not yet regained the public’s confidence,” Gov. John Kasich (R) said in a statement. “Wells Fargo still has work to do.”
The bank, which has repeatedly apologized for its misdeeds, said in a statement that it was “disappointed in the governor’s decision.”