(C) Reuters. FILE PHOTO: A Wells Fargo logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith
By Noor Zainab Hussain and Michelle Price
(Reuters) -Wells Fargo & Co posted a rise in third-quarter profit on Thursday that beat market estimates, as the bank released funds set aside to cover soured loans brought on by the pandemic and reined in costs tied to its years-old sales practices scandal.
The fourth-largest U.S. bank has operated since 2018 under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight, with the Fed also capping its assets at $1.95 trillion.
The lender, which has paid more than $5 billion in civil and criminal penalties, reported a $250 million hit after a top U.S. banking regulator fined it for shortcomings in its earlier efforts to pay back customers it had previously harmed.
Overall, non-interest expenses fell to $13.3 billion from $15.23 billion a year earlier.
Bank executives have repeatedly signaled that the worst of the fallout from the scandal was behind them, and Chief Executive Officer Charlie Scharf has made cost cuts a cornerstone of his turnaround plan, targeting $10 billion in savings annually over the long term.
Issues however remain. A federal judge earlier this month rejected the bank’s bid to dismiss a lawsuit claiming it defrauded shareholders about its ability to rebound from the scandals.
“The recent OCC (Office of the Comptroller of the Currency) enforcement actions are a reminder that the significant deficiencies that existed when I arrived must remain our top priority,” Scharf said.
Federal Reserve Chair Jerome Powell last month said the bank’s asset cap would stay in place until the firm has comprehensively fixed its problems, suggesting Wells Fargo (NYSE:WFC) had a ways to go before it would be allowed to expand.
The cap has curtailed the loan and deposit growth needed by the bank to boost interest income and cover costs.
Wells Fargo’s average loans fell to $854 million in the quarter, from $931.7 million a year earlier. Soft loan demand combined with low-interest rates also hurt its net interest income, which dropped 5%.
Wells Fargo has fewer ways to cushion declines in revenue from low-interest rates as the bank does not have a large capital markets business like rivals.
The lender reported a $1.7 billion decrease in the allowance for credit losses in the quarter.
That helped lift its net income to $5.12 billion, or $1.17 per share, in the quarter ended Sept. 30, from $3.22 billion, or 70 cents per share, a year earlier.
According to Refinitiv estimates, Wells Fargo earned $1.22 per share excluding items, compared with the consensus estimate of 99 cents per share.
Wells Fargo profit beats expectations on reserve release boost
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