Wells Fargo Stock Drops After Earnings Fall Short of Wall Street Expectations

Over the past 12 months, Wells’ stock is up 7.6%. Photograph by Victor J. Blue/Bloomberg

Wells Fargo’s first earnings report under its new CEO, who was brought in to turn around the troubled bank, fell short of Wall Street’s expectations.

The bank reported 93 cents per share in earnings on $19.86 billion in revenue, less than the consensus of $1.12 in EPS and revenue of $20.14 billion.

Wells Fargo stock (ticker: WFC) was down 3.6% to $50.25 in premarket trading on Tuesday following the release. Over the past 12 months, Wells’ stock is up 7.6%, compared with a 27% gain for the S&P 500 over the same period.

“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Charles Scharf, who took over as the bank’s chief executive in late October, said in a statement.

The bank’s third-quarter earnings in October, the last under interim CEO Allen Parker, also fell short of analysts’ expectations.

Scharf, who previously led Bank of New York Mellon, has a relatively short, if daunting, to-do list. He needs to repair Wells’ relationship with banking regulations and get the Federal Reserve to lift its cap on the bank’s growth, which was put in place because of its poor response to a fake-accounts scandal and other compliance-related shortfalls. He also needs to regain the trust of customers, cut expenses and increase earnings.

Some of the tasks might be at odds with each other. For instance, the Fed is no doubt looking for the bank to invest heavily in compliance and control systems and personnel, which could work against efforts to cut costs. If Scharf can get the iconic banking franchise back on track, however, the rewards to investors could be great.

Write to Ben Walsh at ben.walsh@barrons.com