Wells Fargo missed quarterly earnings estimates amid lower interest rates but delivered growth in loans and deposits as it prepares for new leadership.
The bank, which is still recovering from its fake-accounts scandal, reported net income of $4.6 billion in the third quarter, down 23% from a year earlier. Revenue rose slightly to $22.0 billion.
On an adjusted basis, Wells Fargo earned $1.07 a share, missing analysts’ estimates of $1.15 a share.
The decline in profit came as net interest income fell $470 million to $11.6 billion, reflecting the lower interest rate environment, as well as higher mortgage-backed securities premium amortization. Net interest margin dropped to 2.66%, down from 2.94% a year ago.
Wells Fargo also took a $1.6 billion charge for legal expenses related to the scandal. The largest lingering legal issues include investigations by the U.S. Securities and Exchange Commission and the Department of Justice.
“We’ll all be happier when it moves through and is behind us,” CFO John Shrewsberry said on a conference call with journalists.
As The Wall Street Journal reports, “The bank’s key business lines have struggled since the scandal. What was once an aggressive rapidly growing lender whose profit towered above those of rivals has become a firm with sluggish revenue that is leaning heavily on cost cuts. Those trends continued in the third quarter, when the firm’s return on equity stood at 9%.”
A new CEO, Charles Scharf, formerly the chairman and CEO of BNY Mellon, will take over for Tim Sloan at Wells Fargo on Monday.
“The big picture is that Charles Scharf is a great guy for helping with cost cutting … and the mortgage market is absolutely booming,” Charlie Smith, CIO of Fort Pitt Capital Group, told CNBC.
In the third quarter, average loans rose 1.3% to $949.8 billion sequentially as lower interest rates meant Wells Fargo originated more home loans, while total average deposits increased 1.9% to $1.3 trillion. “Business fundamentals were strong as both loans and deposits grew from the second quarter and from a year ago,” Shrewsberry said in a news release.