Wells Fargo: Profit slips 5% as fraud scan­dal takes toll

Cus­tomers stay away from bank that opened mil­lions of bo­gus ac­counts

San Francisco Chronicle Late Edition - - BAY AREA - By Ken Sweet and Joseph Pisani

Wells Fargo said Fri­day its profit fell 5 per­cent in the first full quar­ter af­ter reg­u­la­tors said that bank em­ploy­ees opened mil­lions of cus­tomer ac­counts fraud­u­lently to meet sales goals. The scan­dal has kept new cus­tomers away, with the bank re­port­ing that ac­count open­ings plum­meted last month.

In Septem­ber, reg­u­la­tors fined the San Fran­cisco bank $185 mil­lion for open­ing more than 2 mil­lion unau­tho­rized ac­counts. The scan­dal brought na­tion­wide at­ten­tion to the bank, lead­ing to the res­ig­na­tion of CEO John Stumpf in Oc­to­ber.

This week, the com­pany an­nounced a pay plan for bank branch em­ploy­ees that would elim­i­nate in­cen­tives for open­ing ac­counts or meet­ing sales goals. How­ever, pay will be tied to the way cus­tomers use their ac­counts.

“While we have more work to do, I am proud of the ef­fort of our en­tire team to make things right for our cus­tomers and team mem­bers, and to con­tinue build­ing a bet­ter Wells Fargo for the fu­ture,” CEO Tim Sloan said in a state­ment.

No­tably, Wells Fargo has dropped its cross-

sell­ing goals. The bank would cal­cu­late how many prod­ucts on av­er­age a cus­tomer’s house­hold held, and em­ploy­ees would be paid based on the num­bers. The cross­sale ra­tio came un­der fire af­ter the sales prac­tices scan­dal.

Check­ing ac­count open­ings fell 40 per­cent in De­cem­ber, com­pared with the same month the year be­fore. New credit card ap­pli­ca­tions fell 43 per­cent dur­ing the same pe­riod. Cus­tomer loy­alty scores also fell.

Teller trans­ac­tions fell 6 per­cent from a year ear­lier, while cus­tomers in­ter­ac­tions with the bankers in the branches de­clined 14 per­cent.

Over­all, Wells Fargo re­ported net in­come of $5.27 bil­lion (96 cents per share) in the three months that ended Dec. 31, com­pared with $5.58 bil­lion ($1) in the same quar­ter the year be­fore. Wells Fargo said its earn­ings were low­ered by 7 cents per share be­cause of an ac­count­ing ad­just­ment re­lated to hedg­ing long-term debt.

Ad­justed earn­ings were $1.03 per share, beat­ing the $1 that an­a­lysts had been ex­pect­ing.

Ad­justed rev­enue was $21.58 bil­lion, which fell short of the $22.42 bil­lion that an­a­lysts ex­pected.

Shares of Wells Fargo & Co. rose 81 cents, about 1.5 per­cent, to close at $55.31 Fri­day.

Tayler Smith / New York Times

Wells Fargo con­tin­ues to strug­gle with the fall­out from the phony ac­counts.

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