The scandal over Wells Fargo’s sales practices didn’t appear to have dramatically affected its bottom line as the embattled bank’s third-quarter earnings came in ahead of analysts’ estimates.
Wells Fargo reported Friday that profit fell 2.6% to $5.64 billion, or $1.03 a share, beating the consensus expectation of $1.01 a share. Revenue rose 2.1% to $22.33 billion, compared to analysts’ estimates of $22.21 billion.
“Wells Fargo reported solid results for the third quarter, reflecting the benefits of our diversified business model, our strong balance sheet and improved credit performance,” CFO John Shrewsberry said in a news release.
The Wall Street Journal noted that the scandal has boosted expenses and, with interest rates remaining at superlow levels, Wells Fargo’s return on equity for the third quarter was 11.6%, its lowest level in years.
“But the overall impact of the scandal on Wells Fargo’s bottom line hasn’t yet been as dramatic, so far,” the WSJ said. “Since the enforcement action [over sales practices] became public in early September, analysts’ average estimate for Wells Fargo’s third-quarter earnings had dropped by only one cent-per-share.”
Overall profits at the community banking division, which includes the unit implicated in the questionable sales tactics, fell 9.5% to $3.23 billion, while wholesale banking posted profits of $2.05 billion, up 6% from a year ago.
Costs increased 3% to $13.3 billion from the second quarter and expenses as a share of revenue were 59.4%, above the 55%-59% range that Wells Fargo targets for its so-called “efficiency ratio.”
According to Forbes, Wells Fargo’s cross-sell metrics “will be one [number] to watch in coming quarters” as Wells, reacting to the scandal, has vowed to end all retail banking sales quotas. In the third quarter, its average cross-sell ratio was 6.25 products per household, compared to the 6.33 ratio reported during the same quarter in 2015.
“Wells Fargo is still in the early stages of addressing the likely earnings headwinds from this incident, and we continue to expect both revenue and expense pressures to linger for some time,” UBS analyst Brennan Hawken wrote in a research note Thursday.