Wells Fargo pledges better conduct as bank earnings dip

Wells Fargo warned Friday that a bogus accounts scandal will likely dent earnings in coming quarters as the bank's new chief executive faced tough questioning from Wall Street analysts.

Wells Fargo, reporting a dip in third-quarter profits, signalled that it expects tens of millions of dollars in additional costs to hire more compliance staff after the scandal. The bank also anticipates a hit to revenues as some customers turn to other banks, executives said.

"There was clearly something wrong and we will make the necessary changes to fix it," said chief executive Tim Sloan, who was promoted to the top job on Wednesday with the resignation of embattled John Stumpf.

The remarks came as Wells Fargo and fellow US banking behemoths JPMorgan Chase and Citigroup all reported lower third-quarter results compared with the year-ago period, as margins continue to suffer from ultra-low interest rates.

But profits at all three bested analyst expectations.

Net profit at Wells Fargo was $5.6 billion, down 2.6 percent from the year-ago period. Revenues rose two percent to $22.3 billion, on a seven percent rise in loans.

Customer visits with branch bankers were down 10 percent in September, while newly opened checking accounts fell 25 percent, although Wells Fargo stopped short of attributing the declines to the scandal.

"Customer experience scores trended down but were in-line with historic performance," the bank said.

Shares of Wells Fargo have fallen almost 11 percent since US and California regulators on September 8 announced $185 million in fines for opening some two million deposit and credit card accounts in customers' names without their approval.

Since the scandal broke, Wells Fargo has been savaged by consumer advocates and leading politicians, with Stumpf enduring two bruising hearings on Capitol Hill.

The bank has come under fire not only for opening the fake accounts, but for a sluggish and politically tone-deaf response to the scandal after the Los Angeles Times spotlighted the problem in 2013.

The bank had announced it had fired some 5,300 mid- and low-ranked employees linked to the bogus accounts, while Stumpf and other executives reaped bonuses for the purported growth in account numbers.

Critics said the management had created the high-pressure sales culture that led to the scandal.

Wells Fargo announced last month that Stumpf would forfeit $41 million in compensation and receive no bonus for the year.

It has also taken steps to address employee incentives that were seen as a factor, announcing it would eliminate product sales goals for retail staff.

- Tough questioning -

A contrite Sloan declined comment Friday on many questions and said he wanted to wait for an investigation commissioned by the bank's board before elaborating on why it took Wells Fargo so long to take meaningful action.

Sloan said he didn't know if the report, by an outside law firm, would be released publicly, saying "I wouldn't jump to a conclusion about whether it's a transparency issue or not."

Sloan said the bank would redouble efforts to retain employees after acknowledging many had been "put through the ringer" this year.

While Sloan said the full lessons of the debacle are not known, he vowed to take swifter action in the future.

"We've got to escalate issues sooner," he said.

Sloan, a 29-year Wells veteran, was also questioned on whether the bank should turn to more company outsiders after his promotion. He said that the bank had remade its staff after the 2008 acquisition of Wachovia and that the team had performed well during the financial crisis and beyond.

Shares of Wells Fargo were down 0.5 percent to $44.54 at midday. JPMorgan lost 0.5 percent at $67.42, while Citigroup added 0.1 percent at $48.53.