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Wells Fargo Lowers Expected Earnings Hit From Regulatory Cap on Assets

Wells Fargo Lowers Expected Earnings Hit From Regulatory Cap on Assets
(Mohamed Ahmed Soliman | Dreamstime)

Thursday, 10 May 2018 09:12 AM

Wells Fargo & Co. (WFC) on Thursday said a cap on asset growth imposed by regulators after various sales practices scandals would hurt earnings less that it expected this year, and forecast 2019 expenses below Wall Street expectations.

The lender is under orders by the Federal Reserve to keep its assets below $1.95 trillion until governance and controls improve following a string of sales practices scandals.

In an opening presentation, Wells Fargo Chief Executive Tim Sloan said the bank is making plans to operate under the asset cap for the first part of 2019 and acknowledged that “we have not executed as well as we could have” on compliance and risk oversight areas.

Wells Fargo Treasurer Neal Blinde said the bank previously expected the reduction to net income from the asset cap would be $300 million to $400 million. But lower deposit and loan growth trends gave the bank headroom within the cap, leading to an updated figure of less than $100 million, he said.

In an investor presentation posted on the San Francisco bank’s website, Wells Fargo said net interest income to be relatively stable in 2018 as higher interest rates will be offset by lower earning assets and higher deposit costs.

The bank’s shares were up 0.2 percent in morning trading.

For 2018, the bank reiterated that it expects that total noninterest expenses will be between $53.5 billion and $54.5 billion, and gave a new figure of between $52 billion and $53 billion for 2019. Both ranges include typical operating losses and exclude litigation and remediation items.

Analysts on average expected 2019 noninterest expenses of $53.2 billion, according to Thomson Reuters I/B/E/S.

Wells Fargo Chief Financial Officer John Shrewsberry said the bank would not provide updated guidance on its efficiency ratio, a key measure of costs per dollar of revenue, since it gave the underlying expense component.

However he said that “we still believe that over the long term an efficiency ratio between 55 and 59 percent is appropriate for our business model.”

Shrewsberry said under one scenario for 2020 it is possible the bank would have expenses of $50 billion to $51 billion, and revenue consistent with 2017 results, but he cautioned that was not a formal projection and said the bank’s goal remains to grow revenue.

Analysts said ahead of the event that they would be looking for signs of when revenues will stabilize after being hurt by weak lending and fee income and the asset cap from the Federal Reserve order.

Sloan vowed to improve service to customers, who he said “want convenience and access,” and said the bank is launching a new advertising campaign to re-establish its brand after a series of sales practices scandals.

© 2019 Thomson/Reuters. All rights reserved.

   
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Wells Fargo & Co. (WFC) on Thursday said a cap on asset growth imposed by regulators after various sales practices scandals would hurt earnings less that it expected this year, and forecast 2019 expenses below Wall Street expectations.The lender is under orders by the...
wells, fargo, investors, costs
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2018-12-10
Thursday, 10 May 2018 09:12 AM
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