With a shareholder meeting on the horizon, the company’s CEO Tim Sloan struck an optimistic note in the statement accompanying the earnings report. “Wells Fargo continued to make meaningful progress in the first quarter in rebuilding trust with customers and other important stakeholders, while producing solid financial results,” he wrote. But Sloan has also been forthcoming about the fact that the scandal has taken a toll, which helps to explain the first-quarter figures. “Of course it’s having an impact on performance at the moment,” he said during a conference call to discuss earnings according to The Los Angeles Times. “What we’ve been able to demonstrate historically ... is that we can work through those challenges.”
And the bank has plenty of challenges to work through at the moment. This lackluster performance isn’t especially surprising given the issues that have plagued the company over the past year. First there was the revelation that employees of Wells Fargo’s Community Bank had created as many as 2 million fake accounts in order to meet sales quotas. Amid attempts to investigate and rectify that impropriety, the company’s Community Reinvestment Act rating was downgraded, with the Office of the Comptroller of the Currency citing not only the fake accounts but also allegations of discriminatory practices as causes for the sliding grade.
Aside from reputational damage, the trouble has had actual hard costs, too. The company has been fined around $185 million, clawed back around $200 million in compensation, and will pay around $110 million to settle a class-action lawsuit related to the fake accounts. The firm reportedly spent around $80 million during the last quarter for outside professional services related to the fake-accounts scandal. And in that same conference call, the company’s CFO said that he estimates Wells Fargo will have to shell out similar sums for fake-account-related costs for some time.
In October, shortly after the fake-accounts scandal became public, a consulting firm, cg42, put together a report on the anticipated fallout. By their estimates, the company stood to lose around 14 percent of its customers, who said they’d already decided to switch banks. And 30 percent of the Wells Fargo customers who were surveyed reported shopping around for banking services elsewhere. That’s despite the fact that the fake accounts reportedly affected fewer than 3 percent of customers. Altogether, the report estimated that Wells Fargo stood to lose around $99 billion in deposits and $4 billion in revenues within a year-and-a-half of the fake-accounts revelation.
While it’s true that Wells Fargo’s first-quarter earnings show that the company isn’t invincible, Wells Fargo might actually be faring better than expected given its recent litany of shortcomings. The company’s earnings actually (barely) beat analysts’ expectations, at $1 per share versus an expectation of $0.96 per share. And during the first quarter of the year, Wells Fargo actually saw an increase in deposits, which grew by nearly $80 billion, or 7 percent from this same time in 2016. That may be because there is something to the customer loyalty that Tim Sloan has been so effusively thankful for in his corporate communications.