Photo: Paul Sakuma, Associated Press
Wells Fargo’s earnings slipped in the third quarter, the company said Friday, as the banking giant started dealing with the aftermath of a sales practices scandal that has consumed it in recent weeks.
Wells said it earned $5.6 billion ($1.03 per share), compared with $5.8 billion ($1.05) in the same period a year earlier. The results beat analysts’ expectations of $1.01 per share.
The San Francisco bank is being roiled by a crisis that ultimately toppled its CEO this week. Wells reached a $185 million settlement with regulators last month after allegations that its employees opened up to 2 million bank and credit card accounts without customer authorization so they could meet sales goals.
Also Friday, Ohio Republican Gov. John Kasich announced that he is suspending Wells Fargo from doing business with state agencies, and excluding the bank from participating in any state bond offerings.
Kasich’s announcement follows similar moves by the state treasurers of California and Illinois and the cities of Seattle and Chicago, which have banned Wells Fargo from doing business.
While the scandal has drawn bipartisan outrage, particularly from members of Congress, Kasich is the first state-level Republican to announce actions against Wells Fargo.
Under pressure from politicians and investors, the bank’s longtime CEO, John Stumpf, abruptly retired on Wednesday. Chief Operating Officer Tim Sloan was named to replace him. That has not stopped politicians like Sen. Elizabeth Warren, D-Massachusetts, from blasting Wells; she has called for a criminal investigation of the bank’s activities.
“I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners,” Sloan said in a statement. “We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”
It is too early to see the total, long-term impact the scandal will have on Wells’ bottom line, since most of the developments from the scandal broke in mid-to-late September, when the quarter was nearly over. The bank had noticeably higher noninterest expenses in the quarter, due partly to the $185 million settlement.
In the branches, there were signs that customers were backing away from the bank. In a presentation to investors released Friday, Wells reported a drop in what it calls banker and teller interactions in September from both a year ago and from August, the month before the scandal broke. Consumer checking account openings dropped by 25 percent in September from a year earlier and 30 percent from August. Consumer applications for Wells credit cards also fell sharply in September.
In other parts of Wells’ business, the bank said referrals for mortgages from retail branches were down 24 percent from August. Retail branch referrals account for 10 percent of all Wells’ mortgage originations. Wells is the nation’s largest mortgage lender.
Wells Fargo’s community banking franchise, the bank’s largest division and the business at the center of the scandal, had net income in the quarter of $3.23 billion compared with $3.56 billion in the same period a year.
The wholesale banking division, which consists of Wells Fargo’s investment bank, lending to companies and others, reported net income of $2.04 billion in the quarter, up from $1.93 billion a year earlier.
Wells Fargo revenue in the quarter was $22.33 billion, up 2 percent from a year earlier.