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Wells Fargo Disappoints With 4th-Quarter Revenue Miss

- By Sydnee Gatewood

Shares of Wells Fargo & Co. (WFC) fell after the company reported fourth-quarter and full-year 2018 results before the opening bell on Tuesday.

The San Francisco-based bank, which is one of Warren Buffett (Trades, Portfolio)'s largest holdings, posted earnings of $1.21 per share, topping Refinitiv's estimates of $1.16. Revenue, though, declined 5% from the prior-year quarter to $20.98 billion, missing expectations of $21.73 billion.


This resulted in an annual sales decline for the bank while its peers, JPMorgan Chase (JPM) and Citigroup (NYSE:C), touted increases earlier this week. For the full year, the company recorded earnings of $4.28 per share on $86.4 billion in revenue.

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Wells Fargo said it saw sales declines in all three of its main businesses during the quarter. Revenue in the consumer and small business banking division fell 2% to $11.5 billion as a result of lower mortgage banking income and decreased market-sensitive revenue. Wealth management sales fell 9% to $3.9 billion. In addition, the sale of some of its businesses and lower market-sensitive revenue caused the wholesale banking segment's revenue to decrease 7% to $514 million.

Driven by declines in consumer lending, Wells Fargo's total average loans for the quarter sank 1% to $946.3 billion. Average deposits slipped 3% to $1.3 trillion, largely impacted by the sale and closure of 52 branches.

Net interest income, which is the difference between interest earned on assets and the cost of liabilities, for the quarter grew 3% from the year-ago period to $12.6 billion. For the year, it increased 1% to $49.9 billion. The net interest margin was flat at 2.94%, while analysts were anticipating a slight increase.

The bank's efficiency ratio, which is a measure of profitability, ended the year higher at 63.6%.

Strategic changes

Wells Fargo is still working to bounce back after being crippled by a series of scandals in 2016, which revealed the bank's employees had been opening millions of accounts for customers without their knowledge or consent, resulting in an asset cap. In December, Reuters reported the Federal Reserve rejected the bank's plans to prevent further consumer abuses, saying it needed stronger checks on management.

The company has also implemented a cost-cutting initiative, which includes the elimination of up to 10% of its employee headcount.

In a statement, CEO Tim Sloan said the company has made "significant progress" with its transformational goals.

"We have made meaningful improvements to how we manage risk across the company, particularly operational and compliance risk," he said.

Chief Financial Officer John Shrewsberry also noted the company met its 2018 expense target and is on track to meet its goal for 2019 as well.

Stock movement

With a market cap of $222.7 billion, shares of Wells Fargo were trading 2.29% lower on Tuesday morning at $47.31. GuruFocus estimates the stock tumbled 24% in 2018.

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Bank of America Corp. (BAC), the next major bank to report earnings, is expected to post its results for the fourth quarter before the market opens on Wednesday.

Disclosure: No positions.

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This article first appeared on GuruFocus.