Home » Stocks & Shares » Wells Fargo blames low-interest rates and litigation charges for an over 50% drop in quarterly profit

Wells Fargo blames low-interest rates and litigation charges for an over 50% drop in quarterly profit

Michael Harris
  • January 17th, 12:25
  • Last Updated: January 17th, 12:26
  • Wells Fargo's quarterly profit drops over 50% in Q4 due to low interest rates and litigation charges.
  • Wells Fargo's 12-month stock performance is the worst versus all other major U.S banks.
  • Q4 earnings report is the bank's first under the new Chief Executive Charles Scharf.

Wells Fargo reported its quarterly performance results on earlier this week on Tuesday. The report highlighted the bank’s quarterly profits to have taken a hit due to massive litigation charges and the lower interest rates policy from the U.S Federal Reserve.

According to Refinitiv, analysts had forecast $20.14 billion in revenue for Wells Fargo in the fourth quarter. On earnings per share (EPS) front, experts had anticipated the company to make $1.12 per share. As per the earnings report on Tuesday, however, Wells Fargo printed a slightly lower $19.86 billion in Q4 revenue while the EPS was reported at 93 cents per share.

Wells Fargo Notes $2.87 Billion In Quarterly Profit

In terms of year over year, the drop in the quarterly profit came out to be the most shocking for the bank. While in 2018’s Q4, the bank had reported $6.06 billion in profit, 2019’s fourth quarter capped it at significantly lower $2.87 billion instead.

As per the sources, Wells Fargo was seen trading 4.5% lower in the stock market later on Tuesday, which marked the worst day for the bank in over 13 months. The drop continued on Wednesday as well as the stock closed the day at around $48 per share. Some of it was regained on Thursday with the $208.30 billion company currently exchanging hands at $49.25. In terms of comparative performance in the stock market, Wells Fargo has only gained 7.6% in the past 12 months while the Bank of America has climbed 33% and Citigroup 36.9% in the same time period.

As per the bank representative, the financial loss is also attributed to the ongoing retail sales scandal since 2016. The litigation charges have cost the bank a total of $1.5 billion so far that manifested in the form of an around 17% hike in noninterest expenses in Q4 as compared to the same quarter last year. Wells Fargo also reported higher salaries in the recent quarter.

Q4 Earnings Report Is The Bank’s First Under The New CEO, Charles Scharf

The Q4 earnings report marks the bank’s first under the new CEO, Charles Scharf, who took over the bank in the last few months of 2019. Scharf had previously served as the CEO of the Bank of New York Mellon and replaced Tim Sloan at Wells Fargo. The CEO, as per the sources, is working diligently to resolve the regulatory issues and launch cost-cutting measures to stabilize the bank’s performance.

Wells Fargo’s net interest margin was recorded at 2.53% in Q4 down from the Q3’s 2.66%. Net interest income dropped 11% in the fourth quarter.

About the author

Michael Harris
Michael Harris
I began trading in my early 20's at a local company and since then have combined my knowledge and love of content to become a news writer. I am passionate about bringing insightful articles to readers and hope to add some value to your portfolios!

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