Net interest income, a key metric of bank profitability, tumbled 19% to $9.4 billion. While all banks are grappling with historically low interest rates, Wells Fargo can’t offset that pain by aggressively lending — because of sanctions from the Fed that prevent it from growing its balance sheet.
“One obvious difference is that we won’t be expanding the size of our balance sheet for any reason because we’re operating with an asset cap,” Wells Fargo chief financial officer John Shrewsberry told reporters during a conference call. “Others are operating in a less constrained way.”
Job cuts at Wells Fargo
Wells Fargo also continues to grapple with far higher expenses than its rivals.
Noninterest expenses climbed another 5% compared with the second quarter. And the bank reported $718 million of restructuring charges, mostly because of severance packages paid to laid off workers.
Shrewsberry, who is retiring this fall after 22 years at Wells Fargo, said that a “big piece” of the bank’s cost-cutting plans will come from layoffs and natural attrition. “Undoubtedly there will be more over time,” he said.
Wells Fargo’s headcount stood at 274,900 as of the end of September, down by 2,200 from the year before.
Even though Wells Fargo’s serious legal troubles began four years ago with the fake-accounts scandal, the bank continues to struggle to turn the page.
In July, Shrewsberry said he believed the “worst” was over in terms of customer refunds for past practices. Yet Wells Fargo reported another $961 million of “customer remediation” during the third quarter “for a variety of matters.”
“I was wrong,” Shrewsberry said of his previous prediction. He explained that Wells Fargo realized it needed to make further refunds as new business leaders expanded the number of customers and time period it was evaluating.
“The belief is that we have now fully accounted for what it takes to close these things out,” said Shrewsberry.
The good news is that Wells Fargo’s revenue fell only 14%, exceeding Wall Street estimates. The bank’s credit metrics also improved: Wells Fargo set aside $769 million to cushion the blow from bad loans, which is down sharply from the $9.5 billion it set aside during the second quarter.
Still, Wells Fargo’s results provide yet more evidence of how it has become the nation’s weakest big bank.