Falling Rates, $1.6 Billion Charge Weigh on Wells Fargo Profit

By Rachel Louise Ensign 

Wells Fargo & Co. said Tuesday that third-quarter profit fell as lower interest rates hit the bank's lending profits.

Quarterly profit at the San Francisco-based bank was $4.61 billion, compared with $6.01 billion a year ago. Per share, earnings were 92 cents. Analysts polled by FactSet had expected $1.24 per share.

Third-quarter revenue was $22.0 billion, up from $21.94 billion a year ago. Analysts had expected $21.09 billion.

The lender also took a financial hit related to the fake-account scandal that has dogged Wells Fargo since 2016. The company booked a $1.6 billion charge for legal costs related to its long-running sales-practices problems, but also had a $1.1 billion gain related to the sale of a business.

The bank announced last month after a six-month search that it would hire Bank of New York Mellon Corp. CEO Charles Scharf as chief executive. He will be tasked with restoring the bank's battered reputation and improving its standing with regulators. He starts next week.

The bank's 2016 fake-account issue badly damaged its reputation and led to a morass of regulatory problems. Wells Fargo's key business lines also have struggled in recent years. What was once an aggressive, fast-growing lender whose profit towered above those of rivals has become a firm with sluggish revenue that is leaning heavily on cost cuts.

Revenue fell in consumer banking and wholesale banking from a year earlier.

The bank now must also contend with falling interest rates, which hurt profit. The Federal Reserve cut rates twice in the third quarter. Wells Fargo's net interest income fell 8% in the third quarter from a year earlier.

Net interest margin fell to 2.66% from 2.82% in the prior quarter due to lower rates.

The bank's litigation costs helped push expenses up 10% in the third quarter from a year earlier despite cost-cutting goals. Wells Fargo also paid out more in salary and commission.

Write to Rachel Louise Ensign at [e-mail]

(END) Dow Jones Newswires

October 15, 2019 09:04 ET (13:04 GMT)

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