Wells Fargo quarterly profit falls by 50% following regulatory charges, federal penalties
Wells Fargo posted a 50% drop in fourth quarter earnings on Friday, as an enormous regulatory charge dragged down profits at the end of last year.
The bank reported $2.9 billion in net income for the quarter, down from $5.8 billion for the same period in 2021. That included an expected $3.3 billion operating loss related to litigation, regulatory and customer remediation matters, the bank said in its earnings release.
In late December, the federal Consumer Financial Protection Bureau ordered the bank to pay $3.7 billion in fines and restitution related to “widespread mismanagement” of its auto lending, mortgage and consumer deposit accounts.
Wells Fargo CEO Charlie Scharf said the bank is “moving forward.”
“While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we have made significant progress, and are moving forward,” Scharf said in a statement.
Wells Fargo is based in San Francisco but has its largest employment hub here in Charlotte, with about 27,000 workers here.
The bank’s stock fell more than 4% in premarket trading Friday, CNBC reported.
CFPB penalty against Wells Fargo
The CFPB’s multi-billion-dollar penalty against Wells Fargo was the largest in the agency’s history.
Over a period of several years, the bank charged surprise overdraft fees, incorrectly applied car loan payments and improperly denied mortgage modifications, the consumer bureau found — the last of which caused some customers to lose their vehicles or homes.
“The bank’s illegal conduct led to billions of dollars in financial harm to its customers,” the CFPB said in a news release.
On a Friday morning earnings call with media, CFO Mike Santomassimo echoed Scharf’s sentiment that the CFPB agreement signaled progress for the bank. “It’s an important milestone that helps put these historical issues behind us,” he said.
Mortgage shifts at Wells Fargo
Wells Fargo made another big announcement last week, stating that it would step back from the mortgage business. The bank is halting correspondent home lending — where Wells Fargo buys loans made by third-party lenders — and planning to sell off chunks of its loan servicing division.
Instead, the bank said it would focus on lending to existing customers and minority communities.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, Wells Fargo’s CEO of consumer lending, said in a statement.
Though the move was hardly unexpected, it still marked a significant shift for a bank that was just recently the largest home lender in the country.
The bank already cut hundreds of jobs in its mortgage division in 2022, as the industry buckled under rising interest rates.
Santomassimo, responding to a Charlotte Observer question about potential cuts in the new year, said the bank spent much of last year already restructuring the business.
“We’ve been working really hard over the last three quarters to right-size that business for the expected volume we see,” he said. “I think this is just one more piece of the puzzle. We’re going to continue to make sure that we work through that in a way that reflects the (loan) volumes we expect to get.”
Wells Fargo’s home lending business also has been a subject of criticism in recent years.
Last fall, the bank was fined $250 million by the Office of the Comptroller of the Currency for failing to properly compensate consumers harmed by the bank’s improper mortgage and auto lending practices in prior years.
And in March, a Bloomberg investigation highlighted how the bank approved fewer than half of Black homeowners’ mortgage refinancing applications in 2020, compared with 72% of white applicants. That led to a class action lawsuit and a letter from 11 senators calling for a review of the bank’s refinancing processes.
Bank of America fourth quarter update
Charlotte-based Bank of America also reported fourth quarter earnings on Friday. Net income for the quarter ticked up to $7.1 billion, a 1.4% increase from the year prior.
Bank of America’s consumer banking business saw record profits of $3.6 billion, the bank said, driven by the growth in the volume of consumer investment, small business and consumer checking accounts.
The bank also set aside additional funds for its loan loss reserves, a move made to cover loans gone bad in an economic downturn.
In a statement, CEO Brian Moynihan said the bank was able to grow earnings despite an ”increasingly slowing economic environment.”
This story was originally published January 13, 2023 at 7:34 AM with the headline "Wells Fargo quarterly profit falls by 50% following regulatory charges, federal penalties."
