Charles Scharf, Wells Fargo’s chief executive for the past three months, on Tuesday offered the latest in a series of executive mea culpas for the customer account scandal.
Scharf took over as chief executive Oct. 21, coming over from Bank of New York Mellon as the fourth executive to serve in that Wells Fargo role since the scandal erupted in September 2016.
Scharf attempted during his first quarterly analyst call to own what he called “a series of legacy issues” that have affected at least 3.53 million checking and credit-card accounts.
Wells Fargo has agreed to pay more than $4 billion to date to settle various regulatory and legal disputes since the fall of 2016.
“As I discuss my observations, please recognize that it is still early days” in his new role, Scharf said.
“I don’t have all the answers yet, but I will share more as I learn more and as the year progresses.”
Wells Fargo reported Tuesday having $2.55 billion in fourth-quarter net income, down 55% from $5.71 billion from the previous year.
The primary reason for the decline was Wells Fargo taking an already declared $1.5 billion in litigation accruals “for a variety of matters, including previously disclosed retail sales practices matters,” John Shrewsberry, the bank’s chief financial officer, said in a statement.
“Even excluding these significant items, our results are not as strong as we aspire to,” Scharf said.
“As you know, we made some terrible mistakes and have not effectively addressed our shortcomings.
“These circumstances have led to financial underperformance, but we have one of the most enviable financial services franchises in the world and employees that want to do what’s necessary to again be one of the most respected and successful banks in the U.S.”
The bank reported in August the high end of its shortfall estimate was $3.9 billion, up from $2.2 billion projected in September 2018.
The biggest shadow hanging over Wells Fargo is the Fed’s order, issued Feb. 3, 2018, that prohibits the bank from increasing its total assets beyond the $1.93 trillion it had on Dec. 31, 2017.
Among legal and regulatory entities investigating the bank’s overall sales practices are U.S. Justice Department, Securities and Exchange Commission, the Consumer Bureau of Financial Protection, U.S. Labor Department, various state attorneys general and several congressional committees.
“Many have focused on the Fed consent order, but remember we have 12 public enforcement actions that require significant resource commitment,” Scharf said.
Scharf told analysts that “though I understand you would like time frames around resolution, I cannot provide that today.
“Our job is to do the work that’s necessary. Regulators and other stakeholders will determine when it’s done to their satisfaction. My experience is that our regulators are clear, direct, tough, but fair. The work is on us at this point.”
Three banking analysts have projected a financial under-performance from Wells Fargo in fiscal 2020.
CFRA analyst Kenneth Leon lowered both his 52-week share-price target by $4 to $48, and his fiscal 2020 diluted earnings forecast by 25 cents to $4.35.
Baird analyst David George lowered his rating for Wells Fargo to “underperform.” Dick Bove with Odeon Capital lowered on Dec. 19 his ranking on Wells Fargo from “hold” to “sell,” saying it “appears to be directionless at the moment.”
Scharf acknowledged that Wells Fargo is being hamstrung by the asset cap.
“There’s certainly an opportunity cost due to the asset gap,” he said. “Management time and resources have not been as focused on growth as they otherwise would have been.”
That said, Scharf said the restriction is offering Wells Fargo “an opportunity to think differently with different level of rigor about how to grow the franchise.:
“All of this points to great opportunity. We have just begun the process to rethink our plans for 2020 and beyond in a different level of detail.
“While I certainly wish more of this work was behind us, what’s required of us is clear and we will get it done.”