Wells Fargo on Friday reported a 5.5% jump in quarterly profit but warned the results may need to be revised due to a possible settlement with federal regulators.
The scandal-plagued bank said it earned $5.94 billion, or $1.12 per share, in the first quarter, compared to $5.63 billion, or $1.03 per share. a year ago, beating analysts’ estimates of $1.06 per share.
Revenue also topped expectations, coming in at $21.93 billion compared with the $21.73 billion forecast.
But the shadow of its recent scandals continues to hang over Wells Fargo as it warned the results “are subject to change due to our ongoing discussions with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency” to resolve matters relating to auto loan insurance and mortgage products.
Wells Fargo said the two regulators have proposed a $1 billion settlement, but added, “At this time, we are unable to predict final resolution of the CFPB/OCC matter and cannot reasonably estimate our related loss contingency.”
A collective $1 billion penalty would be the highest-ever fine imposed by the CFPB and, according to Edward Jones financial analyst Kyle Sanders, it could reduce Wells Fargo’s first-quarter profit by approximately 20%.
Investors reacted to the earnings report with some skittishness, sending Wells Fargo’s shares down 3% to $51.15 in trading Friday.
As Reuters reports, “The bank, still smarting from a prolonged sales scandal in its retail banking business, found inconsistencies at its auto lending and mortgage [businesses] in the summer of 2017 — leading to further probes by regulators.”
Wells Fargo has been accused of steering minority borrowers into loans they could not afford, resulting in higher fees, defaults and foreclosures than for white borrowers, and rewarding employees with bonuses for offering such loans.
Art Hogan, chief market strategist at B. Riley in Boston, said Wells Fargo can recover “operationally” from a $1 billion fine but “reputationally and how a billion dollars will weigh on them — only time can tell.”
“Companies have come back from worse than this but right now they’re still in the eye of the storm,” he told Reuters.