Scandal costs will be higher than projected: Wells Fargo
Wells Fargo & Co.’s costs tied to a fake-account scandal are mounting faster than the bank expected as the company incurs expenses for consultants and lawyers.
The lender expects its fees to be US$70 million to US$80 million per quarter, chief financial officer John Shrewsberry told analysts on a conference call Thursday. That compares with the range of US$50 million to US$60 million that he gave in February. The CFO said the costs will persist for “several quarters,” even after the bank’s board released a report this week into how the sales abuses started and were allowed to continue for more than a decade.
“The bigger pieces of those costs will probably abate toward the end of this year and going into next year,” Shrewsberry told Bloomberg Television. Legal issues could stretch into 2018 or later, he said.
Disclosures that the company opened accounts without depositors’ permission have pressured the bank by discouraging potential customers and fuelling costs related to compliance. The bank dropped 3.3 per cent to US$51.35 in New York, the worst performance in the S&P 500 Financials Index, after posting first-quarter revenue that missed analysts’ estimates. That extended the stock’s decline to 6.8 per cent this year.
“Of course it’s having an impact on the performance of the company,” said chief executive Tim Sloan. “When you step back and you look at how serious the retail sales-practice issues were, and the reputational impact on the company, you can only reach that conclusion.”
Customers opened 35 per cent fewer chequing accounts in March compared with a year earlier, while credit-card applications were down 42 per cent, the company said in a statement.
Warren Buffett’s Berkshire Hathaway Inc. is cutting its Wells Fargo stake to less than 10 per cent after the Federal Reserve told the billionaire’s company that remaining above that threshold would limit its ability to do business with the bank. While Berkshire said the reduction is tied to the Fed’s stance, rather than Buffett’s view of the stock valuation, his company’s announcement eliminates a potential buyer during stock slumps.
Sloan, who was promoted to CEO in October, has been working to put the scandal behind the bank, promising that his managers are learning from mistakes outlined in the 113-page report issued Monday. He touted the banks’ philanthropy and earnings history, while saying that he’s “learned painfully” in his new role that the company doesn’t write headlines for stories in the media.
“I wish we did,” he said.