Shares of Wells Fargo & Co. (WFC) tumbled after the U.S. bank reported a bigger-than-expected decline in second-quarter profit, as the bank struggles under regulatory sanctions and continues to face higher legal costs stemming from a series of customer-related scandals in recent years.
Net income decreased 11% from a year earlier to $5.19 billion, the San Francisco-based bank said Friday, July 13, in a statement. Earnings per share were 98 cents, missing the average analyst estimate of $1.12 in a FactSet survey. The results included a $481 million income-tax expense, triggered by a recent legal decision, according to the company.
The stock tumbled 3.1% after the report, with the San Francisco-based bank recording nearly $300 million in additional legal costs related to the scandals. Wells Fargo has faced allegations since 2016 that customers were treated inappropriately due to overly aggressive sales practices, and the U.S. Federal Reserve earlier this year took the draconian and unprecedented step of capping the bank's assets at about $2 trillion.
In response, Wells Fargo has had to temper its lending operations while turning away some commercial customers' deposits. Total loans fell by 1% from a year earlier to $944.1 billion, contrasting with loan growth of 4% reported for the quarter by rival JPMorgan Chase & Co. (JPM) .
"We continued to transform Wells Fargo into a better, stronger company," CEO Tim Sloan said in the statement. "Our progress included making further improvements to our compliance and operational risk-management programs."
Wells Fargo's total average deposits declined by $25.8 billion from the prior quarter to $1.3 trillion, partly due to "actions the company has taken in response to the asset cap," according to the statement.
Octavio Marenzi, CEO of the capital-markets consultancy Opimas, said in an e-mailed note that the weak results were "troubling."
"It appears that the slew of scandals that Wells Fargo has been involved in are taking their toll," Marenzi wrote.
JPMorgan Chase, the biggest U.S. bank, said earlier Friday that net income rose 18% from a year earlier, due to President Donald Trump's tax cuts in December, while Citigroup Inc. (C) posted a 16% profit increase.