Wells Fargo profits squeezed by low rates
Profits have dipped at Wells Fargo, the latest sign of the squeeze ultra-low interest rates are putting on lenders and a reminder that the sales scandal that toppled its chief executive is far from the only challenge facing the bank.
Disclosing earnings two days after the dramatic departure of John Stumpf, Wells said on Friday that net income between June and the end of September came in at $5.64bn, down from $5.8bn a year ago. Revenues were little changed at $22bn.
The figures reflect only about three weeks of the impact from the bogus accounts debacle, which has undermined the bank’s reputation for steering clear of the scandals that have engulfed larger rivals.
Rather, the decline in returns largely reflect the squeeze being put on the global banking industry from toughened regulations and rock bottom interest rates. The retail-focused bank generated a return on equity during the quarter of 11.6 per cent — ahead of its large rivals, but down from 12.62 per cent the same period a year ago.
The closely watched net interest margin — the gap between what banks charge borrowers and pay for their funds — dipped from 2.96 per cent last time to 2.82 per cent.
Shares in Wells Fargo have fallen about 18 per cent this year, making them the biggest losers in the KBW index of 24 US banks. They ticked up 0.2 per cent in pre-market trading.
The bank has lost its status as the world’s most valuable after regulators said last month that thousands of workers, under pressure to meet sales targets, created as many as 2m sham bank accounts and credit cards without customers’ knowledge.
Tim Sloan, the incoming chief executive, said on Friday: “I am deeply committed to restoring the trust of all of our stakeholders … 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 calibre of our team members. We will work tirelessly to build a stronger and better Wells Fargo.”