Wells Fargo’s fake account scandal started last year. Angeli Kakade (@angelikakade) has the story. Buzz60
The impact of a scandal over fake accounts and mortgage-related investigations continues to drag on Wells Fargo — even as the banking giant benefits from a sweeping federal tax overhaul.
Trying to rebound from admissions that more than 3 million financial accounts may not have been authorized by customers, the bank on Friday disclosed a $3.25 billion pre-tax expense, or 59 cents per share, for litigation reserves related to the sales practices that led to the scandal, as well as other matters, including mortgage-related regulatory investigations.
Most of the expense was not tax-deductible, the company said as it reported its financial results for the fourth quarter.
The larger-than-expected litigation accrual came after Wells Fargo took a $1 billion write-down during the third quarter for an anticipated federal settlement over the marketing and sales of mortgage-backed securities before the national financial crisis.
The San Francisco-based bank has ousted top executives, scrapped salary incentives that put pressure on employees to open as many new accounts for customers as possible, and made other changes in a bid to restore consumer confidence and jump-start sluggish earnings.
Wells Fargo’s CEO, Tim Sloan, told investors and Wall Street analysts during a Friday conference call that the bank had made progress moving beyond the scandal and other investigations. But he offered no guarantee that the issues are now in the past.
Wells Fargo CEO Tim Sloan took over the company last year after the fake accounts scandal. Time
“I just can’t provide you with that absolute guarantee at this moment in time,” Sloan said. “Maybe someday I will, but I think it’s going to be something we look at in the rear-view mirror over a longer period of time, as opposed to having some inflection point today or tomorrow or the week after that.”
In more upbeat financial news, Wells Fargo said it got an after-tax benefit of $3.35 billion , or 67 cents per share, from the federal tax overhaul finalized in December by Congress and the Trump administration.
The tax changes essentially enabled Wells Fargo, which had roughly $7 billion in deferred tax liabilities it could have owed in the future, to instead write down some of the liabilities and record a financial gain.
Due to the tax overhaul’s cut of the federal levy on corporations, Wells Fargo said it now expected its effective annual tax rate for 2018 to be 19% percent, down from a rate as high as 31.5% in one recent year.
Republican leaders in the House of Representatives briefed reporters on their agenda for the new year on Tuesday as they arrived back to work on Capitol Hill. They also celebrated the passage of tax reform at the end of last year. (Jan. 9) AP
Citing initial positive input from bank customers, Sloan voiced cautious optimism that the tax changes would help jump-start Wells Fargo financial growth in 2018 and beyond.
As a result of the overhaul, the bank is increasing the minimum hourly pay rate for all U.S.-based employees to $15, an 11% boost from the previous rate, effective March 2018. Wells Fargo also is examining a potential increase for employees already earning $15 an hour, or slightly more, Sloan said.
In an effort to use the tax benefits to boost the economy, Wells Fargo separately is targeting $400 million in donations to community and nonprofit organizations in 2018. Starting next year, Wells Fargo said it would target 2% of after-tax profits for corporate charitable giving.
In its detailed financial results, Wells Fargo reported revenue of $22.05 billion, less than the nearly $22.64 billion consensus forecast of financial analysts surveyed by S&P Global Market Intelligence.
Wells Fargo reported a profit of $6.15 billion, or $1.16 per share. That fell below the $1.54 projection of the financial analysts.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc