Wells Fargo has made significant progress dealing with regulatory issues tied to legacy scandals, according to chief executive officer Charles Scharf.
It was during Scharf’s first few months as CEO that Wells Fargo struck a $3 billion settlement to resolve the criminal and civil investigations over sales practices and bogus account openings in the community bank division that have besieged its brand since the allegations first arose in 2016. In January, the Office of the Comptroller of the Currency terminated its 2015 consent order over dubious marketing and billing practices in the firm’s banking business.
“Building an appropriate risk and control infrastructure remains our top priority and I continue to believe that we’re making significant progress,” Scharf said last week during a conference call to discuss the firm’s first-quarter results.
Scharf noted that Wells Fargo named Derek Flowers to succeed chief risk officer Amanda Norton, who is set to retire at the end of June.
“Derek has extensive experience managing risk, including the work he has done over the last several years of managing the build out of Wells Fargo’s risk and control framework,” Scharf said.
Scharf said the OCC’s termination of the 2015 consent order is a positive development, but risk and control work is ongoing.
“We have much more work to do to satisfy our regulatory requirements, and we will likely have setbacks, but I am confident in our ability to close the remaining gaps over the next several years,” he said.
As Wells Fargo improves its controls, the company may find other issues that need to be addressed, according to Scharf.
“We have tried to be very clear that we have a lot of ongoing work to do, that we feel very good about the frameworks that we have in place,” he said.
“Once you develop the framework, the implementation of the frameworks takes a significant amount of time — we continue to do that, and as we develop stronger controls inside the company, we will potentially find things that then have to get fixed and remediated,” he added. “That’s the reality of the situation,” he said.
Meanwhile, Wells Fargo’s advisor headcount continued to shrink during the first three months of 2022, while advisor productivity grew, according to the firm’s first-quarter results.
Wells Fargo ended the first quarter with 12,250 financial and wealth advisors, down from 12,367 at the end of the prior quarter and 13,227 at the end of the prior year’s quarter. However, just as it did in the fourth quarter of 2021, productivity among advisors rose in the first quarter.
Annualized revenue per advisor was $1.22 million during the first quarter, up 4% from $1.17 million during the prior quarter and a 15% hike from $1.06 million in the same period last year.
Wells Fargo had $2.08 trillion in total client assets within its wealth and investment unit in the first quarter, down 5% from $2.18 trillion in the prior quarter but up 1% from $2.06 trillion in the prior year’s quarter.
Total revenue in Wells Fargo’s wealth and investment management unit was $3.78 billion, up 3% from $3.65 billion in the fourth quarter and up 6% from $3.54 billion in the same period last year.
Overall, the bank earned 88 cents a share on profit of $3.67 billion, compared to $1.02 a share and profit of $4.64 billion in the prior year’s quarter.
Wells Fargo’s first-quarter revenue was $17.59 billion, down from $18.53 billion in the prior year’s quarter.
Scharf said during last week’s call that Wells Fargo is closely monitoring the potential economic fallout from Russia’s invasion of Ukraine.
“While we have minimal direct exposure to Russia or Ukraine, we’re monitoring certain industries that have the potential to be impacted by the conflict and economic sanctions, but thus far, don’t have concerns,” he said.
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