Wells Fargo Comes Unscathed in Q3 Despite Sales Practices Scandal

The bank earnings season is upon us thick and fast, and a name that thus far symbolized stability and safety has made investors sweat ahead of its earnings, thanks to the customer account scam.

Key Metrics

Wells Fargo & Co WFC said in release ahead of the market open Friday that its third-quarter 2016 net income fell to $1.03 per share from $1.05 per share last year. Net earnings were down 3.45 percent to $5.6 billion.

However, analysts, on average, expected earnings of $1.03 per share for the quarter.

Sequential comparison with the second quarter of 2016 revealed an increase in earnings per share from $1.01 and flattish trend with respect to the net income.

Revenues were at $22.33 billion, up from the year-ago's $21.88 billion and pipping past the $22.22 billion consensus estimate.

Related Link: CNBC's Brian Sullivan Calls Stumpf's Parachute Payment "Another Black Eye" For Wells Fargo

While previewing the result, Barclays had said earlier this week an earnings miss was in the cards. However, the firm termed all the remedial actions taken by the company in the aftermath of the scandal as steps in the right direction. These steps, according to the firm, will alleviate concerns over time. However, the firm expects new regulatory inquiries and related lawsuits to pose a challenge.

Other Metrics

• Net interest income, which is interest income less interest expenses — a profitability measure for its traditional banking business — rose slightly to $11.95 billion. Average loans and average deposits rose 7 percent and 5 percent year-over-year.
• Provision for credit losses was up to $805 million from $703 million.
• Net interest margin was down four basis points sequentially to 2.82 percent, as long-term debt and deposits grew.
• Non-interest income, which includes contributions from trust and investment fees, service charges on deposit accounts and mortgage banking, fell to $10.38 billion from $10.42 billion. This is despite income from all the three increasing. Gains from equity investment suffered in the quarter.
• Non-interest income rose to $13.27 billion from $12.40 billion, a 7 percent increase. The rise reflected higher salaries, employee benefits and other expenses.

Key Return Ratios

• Return on assets was at 1.17 percent.
• Return on equity came in at 11.60 percent.

In the release, the company also outlined details regarding settlements with various agencies related to the sales practices scandal. The company said as of June 30, 2016, it had accrued $185 million, plus $5 million in customer remediation.

Wells Fargo found itself in the center of a storm in September, as it was pulled up by regulatory agencies for allegedly opening fake savings and credit accounts without customers' volition. The misconduct was done apparently to meet employee sales goals program the company ran, which was necessary for determining employees' financial rewards.

As a corollary, Wells Fargo had eased out its CEO John Stumpf and appointed chief operating officer Tim Sloan to the post. However, investors were appalled when a SEC filing revealed that he pocketed a neat $130 million as part of the severance package.

Peer Performance

Among bigger peers, Citigroup Inc C and JPMorgan Chase & Co. JPM both handily beat estimates, suggesting that the financial space may be on a roll in Friday's session.

In pre-market trading, shares of Wells Fargo were up 0.27 percent at $44.75. In the five minutes after opening bell, the stock was up 1.07 percent at $45.23.

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