Wells Fargo Stock Drops as Revenue Disappoints - Barron's

Revenue was lower than in the fourth quarter of 2019.
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Wells Fargo shares are sliding after the San Francisco-based bank reported revenues that were lower than expected and weaker than in the same quarter a year earlier.

Wells Fargo (ticker: WFC) posted earnings of $3.0 billion, or 64 cents a share, on revenue of $17.9 billion. Analysts surveyed by FactSet were expecting the bank to post earnings of 59 cents a share, but with revenue of $18.1 billion. Profits were slightly higher than the fourth quarter of 2019 when they totaled $2.9 billion, but revenue was lower than the $19.9 billion year-earlier figure.

Well Fargo’s provision for credit losses fell by $823 million, reflecting a $757 million release of reserves after selling its student loan portfolio, as well as lower net charge-offs of bad loans.

“Although our financial performance improved and we earned $3.0 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us,” Charlie Scharf, chief executive of the bank said in a statement.

The bank’s efficiency ratio, which has been higher than its peers’, climbed sequentially as well as year over year. As of the fourth quarter of 2020, the efficiency ratio stood at 83%, higher than the 81% and 79% in the third quarter of 2020 and fourth quarter of 2019, respectively. Lower figures indicate that operating expenses account for a smaller share of revenue.

“With a more consistent broad-based recovery and as we continue to press forward with our agenda, we expect you will see that this franchise is capable of much more,” Scharf said.

Ahead of earnings, the bank reorganized its business units into consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management, as it works to become more efficient.

There were big hopes for Wells Fargo ahead of the earnings news. Wells Fargo fared worse than peers in 2020 as it continues to recover from its fake-accounts scandal. As a result of the scandal, the bank is operating under a $2 trillion asset cap imposed by the Federal Reserve. Wells Fargo management has noted that the cap has limited its flexibility in navigating through the crisis. Analysts are increasingly noting that the bank is the one with the most room for improvement.

Wells Fargo’s results, which sent the shares down more than 7% in Friday’s trading, didn’t temper analysts’ enthusiasm.

“We believe the current share price reflects an overly pessimistic view of Wells future. In our view, a turnaround for the stock rests upon (1) progress toward removing the asset cap (2) and reducing its bloated expense base,” Kyle Sanders, analyst at Edward Jones, said in a note Friday. “Fixing these issues requires a talented management team (which we believe they now have) and time. While the timeline for a turnaround has lasted longer than we would like, we remain confident it will happen.”

Citigroup (C) and JPMorgan Chase (JPM) also reported earnings on Friday. Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) will report their fourth-quarter results next week.

Write to Carleton English at carleton.english@dowjones.com

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