Wells Fargo’s legal troubles are far from over.
For the fourth quarter of last year, the US banking giant reported a $3.25 billion charge for litigation (pdf), relating to “mortgage-related regulatory investigations, sales practices, and other consumer-related matters.” That was up from a $1 billion hit in the previous quarter.
In 2016, it was revealed that for years Wells Fargo employees had been opening millions of unauthorized accounts and sticking unaware customers with unwelcome fees. The banks fired the workers and agreed to pay a $185 million fine. The chairman and CEO at the time, John Stumpf, was hauled before Congress, eventually resigned, and was forced to give up $40 million in pay.
However, as the bank reported today, the pain of lingering legal charges has been offset by Congress. The tax cut passed into law at the end of last year meant that Wells Fargo also reported a $3.35 billion accounting benefit from pending tax changes. Overall, for the fourth quarter the bank reported net income of a hefty $6.2 billion, up from $5.3 billion a year earlier. In 2017, the bank also returned a record $14.5 billion to shareholders.
The lowering of the US corporate tax rate means the bank will gain from deferred income tax liabilities. For 2017, Wells Fargo’s effective income tax rate paid was 18.1%, and is expected to be 19% in 2018, down from 31% in 2016. Unlike many other banks, Wells Fargo is seeing an immediate boost from tax reform because it has few overseas operations. For example, JPMorgan announced today that it booked a $2.4 billion charge in the fourth quarter, most of which is relating to the change in repatriation taxes. By comparison, Wells Fargo’s expenses from repatriation only amounted to $173 million in its latest quarter.
In response to the tax changes, Wells Fargo said it will increase the minimum hourly wage of US staff by 11%, to $15, and donate $400 million to community and nonprofit organizations this year. A number of other companies have announced wage hikes and bonuses for staff after the tax cuts, but have still been criticized for sharing only a small slice of the gains with workers and diverting the bulk of the benefits to shareholders.
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