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Wells Fargo Profits Down in Wake of Account Fraud Scandal

By Motley Fool Staff – Oct 19, 2017 at 12:54PM

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Third-quarter results for some of the too-big-to-fail institutions came out remarkably different.

In this segment from the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser, Supernova and Rule Breakers' David Kretzmann, and Motley Fool Hidden Gems' Andy Cross consider the factors behind the wildly different results posted by Wells Fargo (WFC 3.38%) -- profits fell 18% -- versus other big banks. It's been about a year since the first revelations of Wells' massive fake account fraud, but the bank isn't losing accounts. So what gives?

A full transcript follows the video.

This video was recorded on Oct. 13, 2017.

Chris Hill: We begin with a tale of two banks. Wells Fargo's third-quarter profits fell 18% while Bank of America's third-quarter profits rose 13%. Not surprisingly, B of A shares doing a little better on Friday, Jason. Wells Fargo, racking up some legal fees there.

Jason Moser: Discrete fees. We'll talk about that. It's been a little bit more than a year since the news broke of the fraudulent accounts. We talked about it a lot when it happened. I think I basically came to the conclusion that we were going to make a lot of noise about it, disapprove of it, and then everybody was going to go about their business and the stock was going to be just fine. And I think that's because, generally speaking, people are lazy in relation to how sticky these bank accounts are. And fast-forward to today, the stock is up 20% since this news broke. So, it seems like everything is going to be OK in regard to that. The metric we were looking at a year ago when this happened, started following total average deposits, because I think that would be a good indicator as to whether people were really serious about closing their accounts and putting their money elsewhere. Total average deposits were up 4% from the year ago. A bit more modest on a sequential basis, but the bottom line is, people are not, in fact, closing their accounts. It figures that they're doing a good job of at least keeping people in there and apologizing, and I guess they're being taken somewhat seriously. I don't think replacing Stumpf with Sloan was the right move, honestly, because Sloan has been there since '87, so he was part of all this mess to begin with. But, obviously, they are recovering.

Hill: Obviously, it doesn't matter. [laughs]

Moser: It apparently doesn't matter. Wall Street is going to give them a pass eventually. It's a stock that has done very well, still, over the last five years, although if you compare it to something like Bank of America, Bank of America has outperformed it handily. That has come, not surprisingly, over the past year.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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