Wells Fargo & Co (NYSE: WFC) stock fell 0.4% in the pre-market session of January 15th, 2020 (Source: Google finance) after the company in the fourth quarter of FY19 has reported the adjusted earnings per share of 60 cents, significantly missing the analysts’ estimates for the adjusted earnings per share of $1.12, according to figures compiled by Thomson Reuters. The company had also reported 5.3 percent decline in the adjusted revenue growth to $19.86 billion in the fourth quarter of FY19, that is below expectations of $20.12 billion. The profit slumped 55% in the fourth quarter as new chief Charles Scharf had set aside another $1.5 billion for legal costs related to the bank’s sales scandal and promised “fundamental changes.” The bank has posted the operational losses of $1.9 billion in the fourth quarter of the year 2019, partly for reserves to cover pending litigation related to its fake-account scandal that erupted more than three years ago. The bank’s net interest income had declined 11% as the Fed lowered interest rates three times last year to support the economy. WFC had a $362 million gain from the sale of the commercial real estate brokerage business, Eastdil Secured.
Meanwhile, WFC is operating under heavy scrutiny as it is trying to rebuild its reputation, that includes an unprecedented cap on its balance sheet by the Federal Reserve and frequent criticism from prominent U.S. politicians. The company’s problem had begun in September 2016, when the bank revealed that employees had opened potentially millions of bogus accounts in customers’ names without their permission to achieve the sales targets set by management. Since then, WFC has found other problematic practices that cost customers money or otherwise harmed their financial well-being.
Moreover, in the fourth quarter, the company had $166 million of expenses that are related to the strategic reassessment of technology projects in Wealth and Investment Management. The company had a $153 million linked-quarter decline in low-income housing tax credit investment income, which reflects a timing change of expected tax benefit recognition. The company had a $134 million gain on loan sales, mainly junior lien mortgages and the company had a $125 million loan loss reserve release.
Furthermore, the Average deposit costs increased 2% from the third quarter and 4% from a year ago. The consumer loans rose $4 billion from the third quarter. The first mortgage loan portfolio grew $3.2 billion from the prior quarter, due to $17.8 billion of held-for-investment mortgage loan originations and the purchase of $2.3 billion of loans due to exercising servicer cleanup calls.