Wells Fargo Hit by Surprise Charge From Pre-Crisis Mortgages

Nearly a decade after the financial crisis, Wells Fargo & Co. is getting stung by bad behavior in the housing bubble.

The company took a surprise $1 billion charge in the quarter for previously disclosed regulatory investigations into its pre-crisis mortgage activity, the third-largest U.S. lender said Friday in a statement. The expense pushed total costs to a record $14.4 billion.

This latest hit adds to Chief Executive Officer Tim Sloan’s challenges, 13 months after the San Francisco-based bank was rocked by a fake accounts scandal. Wells Fargo has struggled to attract customers after news broke last year that branch bankers opened thousands of accounts without customer approval to meet aggressive sales targets. More recently, it’s come under fire over auto-loan clients who were forced to pay for unwanted car insurance and mortgage customers who were improperly charged fees.

“That charge was something of a surprise for us, but let us leave that on the side and the underlying trends remains in a lackluster trend,” Chris Kotowski, an analyst at Oppenheimer & Co., said in a note Friday. 

The bank is one of the last firms not to have settled with regulators and the Justice Department over its handling of home loans in the run up to the housing crisis. It provided more detail earlier this year in its annual securities filing.

“Wells Fargo, for itself and for predecessor institutions, has responded, and continues to respond, to requests from these agencies seeking information regarding the origination, underwriting and securitization of residential mortgages, including sub-prime mortgages,” the lender said at the time. “These agencies have advanced theories of purported liability with respect to certain of these activities.”

Misses Estimates

The charge cut 20 cents from the bank’s earnings per share this quarter, bringing profit to 84 cents. That fell short of the $1.03 average estimate of 26 analysts surveyed by Bloomberg. Shares slumped 3.6 percent to $53.22 at 9:54 a.m. in New York.

Net income fell 19 percent from the year earlier period to $4.6 billion. Analysts expected $5.13 billion.

Read more: Bank of America posts best profit in six years

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