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Wells Fargo faces $1 billion fine from loan abuses

Reuters 

By Aparajita Saxena

(Reuters) - Two U.S. regulators have proposed & Co pay $1 billion in penalties to resolve probes into and mortgage lending abuses at the third largest U.S. bank, overshadowing its first quarter results.

The San Francisco-based lender, which reported a quarterly profit, said it may have to restate results to reflect the final settlement. The proposed penalties were reported earlier this week by

Analysts said that while the $1 billion penalty would not make a significant dent to its balance sheet, it may take the some time to repair the damage to its reputation.

Shares of the fell 3.4 percent to $50.89.

"Operationally, can recover, but reputationally and how a billion dollars will weigh on them - only time can tell," said Art Hogan, at B. Riley in

"Companies have come back from worse than this but right now they're still in the eye of the storm," he added.

The bank, still smarting from a prolonged sales scandal in its business, found inconsistencies at its auto lending and mortgage in the summer of 2017 - leading to further probes by regulators.

To appease investors and regulators, the overhauled its operational structure, shook up its board and hired a new

But this failed to impress the U.S. Federal Reserve, which imposed restrictions in February on the bank's growth, forbidding it to expand its balance sheet beyond 2017 levels until it makes internal changes that addressed

"A bank's balance sheet is the engine for profit growth," said Kyle Sanders, at "The constraints on Well's ability to take on deposits and make new loans will likely result in lagging earnings growth for Wells relative to peers in the near-term."

Wells estimates restrictions on balance sheet growth will cut annual profit by $300 million to $400 million this year.

repeatedly sought to reassure investors that the was stable despite the regulatory restrictions.

"I'm confident that our outstanding team will continue to transform into a better, stronger company; however, we recognise that it will take time to put all of our challenges behind us," Sloan said in the bank's first-quarter results statement on Friday.

But as recently as last month, the also said it was examining its wealth and investment management business for possible customer abuse, including overcharging and inappropriate referrals, after inquiries from government agencies.

PROFIT RISES, REVENUE DIPS

Despite its ongoing woes, the reported a 6 percent jump in profit, saying net income applicable to common stock rose to $5.53 billion, or $1.12 per share in the quarter ended March 31, from $5.23 billion, or $1.03 per share a year ago. (https://reut.rs/2HgHNMt)

Analysts on average expected $1.06 per share, according to I/B/E/S.

has been struggling to reduce expenses, but failed to keep a leash on costs in the quarter despite Sloan's vow to slash $4 billion in costs by 2019 by closing hundreds of branches and taking other measures.

Total noninterest expenses for the first quarter rose 3.3 percent to $14.24 billion.

Sloan reiterated his 2019 cost savings target, and said his non-interest expense dollar target range for full-year 2018 remains unchanged.

In January, the company had said it remained committed to reducing its expenses by $2 billion by the end of 2018.

Total revenue in the quarter fell 1.4 percent to $21.93 billion. Total loans slipped 1.2 percent to $947.3 billion, hurt most by a decline in average loans in its community banking unit, which includes

Non-interest income from mortgage banking, an area where the supersedes its peers, fell 23.9 percent due to rising interest rates.

Income tax expenses fell 36 percent to $1.37 billion following Donald Trump's tax overhaul last year.

(Reporting By in Bengaluru; Editing by Patrick Graham, Bernard Orr)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Sat, April 14 2018. 02:13 IST
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