Wells Fargo expects two classes of business loans to fall from second-quarter levels. Photo: Richard Drew/Associated Press
Wells Fargo is having a tough time growing its loan book. The drumbeat of negative news around its governance issues is one reason for its struggles, and shooting the messenger won’t help.
Chief Financial Officer John Shrewsberry said at a conference on Friday that he expects two key classes of business loans, commercial real estate and commercial and industrial loans, to fall from second-quarter levels, although he didn’t specify an exact time frame. Wells Fargo’s total loans outstanding at the end of the second quarter were down by $3 billion compared with the prior quarter, driven by declines in consumer and commercial real-estate loans. Commercial and industrial loans rose.
Several midsize regional lenders also warned of soft lending this week, which hit their share prices. But most merely cited a slowdown, not an outright decline. Wells Fargo’s big bank peers Citigroup and JPMorgan Chase actually gave upbeat lending outlooks.
Mr. Shrewsberry cited a host of factors, including deliberate lending discipline, strong capital markets that provide an alternative funding source and a competitive environment, including from nonbank lenders. But he also acknowledged for the first time that reputational issues may be hurting its commercial-lending business, not just the consumer business where the impact has long been obvious.
Fresh revelations of governance issues at the bank have continued to dribble out in recent months. And they haven’t been limited to the retail bank, where the account-sales controversy first emerged in 2016. In the second quarter of this year, for instance, Wells booked $171 million of costs to compensate customers who were improperly charged for currency trades. This month, The Wall Street Journal reported that the Justice Department is probing whether employees in Wells Fargo’s wholesale-banking unit committed fraud by adding information to customer documents without their consent as recently as this year.
Given all this negative news flow, it isn’t surprising that some companies would rather borrow from someone else if pricing and terms are similar.
Asked at Friday’s conference when the bad news might abate, Mr. Shrewsberry was blunt. “A lot of these negative headlines refer to things that have been previously really well aired and vetted, but it’s a very reliable ad seller, I think, and it’s a business model for some people,” he said, making clear he was referring to journalists.
Shifting blame to those who helped bring its lapses to light is unlikely to reassure potential clients or investors that Wells Fargo is taking its issues as seriously as it should. The bank’s competitors are pulling ahead while it remains stuck in the mud. Despite this, its shares are still relatively expensive at 1.5 times book value. There is still no reason for investors to hold this stock.
Write to Aaron Back at [email protected]