Wells Fargo's legal troubles drown out huge tax windfall

Wells Fargo's legal troubles won't go away.The nation's No. 2 bank scored a $3.4 billion windfall during the f...

Posted: Jan 12, 2018 2:05 PM
Updated: Jan 12, 2018 2:05 PM

Wells Fargo's legal troubles won't go away.

The nation's No. 2 bank scored a $3.4 billion windfall during the final three months of 2017 from the corporate tax cut signed into law by President Trump.

But the many scandals haunting the bank erased most of that bonanza.

The company's litigation expenses ballooned to $3.3 billion before taxes. That's more than triple what Wells Fargo set aside during the previous three months.

Wells Fargo said the legal costs stemmed from the bank's infamous fake-accounts debacle, mortgage-related investigations and "other consumer-related matters." Most of those expenses are not tax deductible.

The litigation costs show that Wells Fargo has yet to shake off more than a year of controversy that has tarnished its reputation, hurt its stock price and dinged profits.

"While we faced challenges in 2017," CEO Tim Sloan said in a statement, "we are a much better company today than we were a year ago, and I am confident that this year Wells Fargo will be even better."

Wells Fargo's stock flatlined as its profit and revenue trailed targets. The stock has soared 38% since Trump's election, but that's well behind Bank of America, Citigroup and JPMorgan Chase.

Related: JPMorgan's Dimon gushes about tax cuts

The good news for Wells Fargo is it's expected to be one of the biggest winners from the tax overhaul. Banks pay relatively high tax rates, so they stand to benefit from the reduction in the corporate rate from 35% to 21%. Wells Fargo makes virtually all its money in America.

Wells Fargo has already enjoyed a $3.4 billion after-tax benefit from the tax law. Most of that is tied to money Wells Fargo owed Uncle Sam in the future, known as a deferred tax liability. The bank wrote down part of that IOU, triggering a $3.9 billion gain. Other banks, such as JPMorgan, have suffered short-term hits because deferred tax assets lost value when taxes were cut.

Wells Fargo's windfall was offset a bit by tax losses linked to low-income housing, renewable energy investments and bringing foreign profits back to the United States.

Like other companies, Wells Fargo has announced plans to share its tax windfall with workers and customers by raising its minimum wage to $15 an hour and giving 40% more to charities.

Wall Street remains concerned about Wells Fargo's hefty expenses, though. The bank's noninterest expenses grew by 17% last quarter to $16.8 billion. Wells Fargo has pledged to slash $4 billion in costs this year and next, in part by closing more than 400 branches.

Wells Fargo did not break down how much it's spending on legal problems.

However, much of the money is likely being set aside to cover pre-crisis mortgage troubles that still plague the bank. Unlike its peers, Wells Fargo has not reached a settlement with the Justice Department over the sale of subprime and other mortgages prior to the Great Recession. The bank has said it's in talks with the Justice Department.

Wells Fargo has also said it wrongly charged some homebuyers fees to lock in mortgage rates.

And the bank has admitted to other consumer-related problems. The bank has said it charged as many as 570,000 customers since 2012 for car insurance they didn't want. Wells Fargo has uncovered up to 3.5 million potentially fake bank and credit card accounts.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 514171

Reported Deaths: 10285
CountyCasesDeaths
Harrison34920557
DeSoto33270432
Hinds32652642
Jackson24876391
Rankin22516404
Lee16366245
Madison14932283
Jones14129247
Forrest13785260
Lauderdale12279324
Lowndes11314193
Lamar10663140
Pearl River9720244
Lafayette8855143
Hancock7839132
Washington7553169
Oktibbeha7216138
Monroe7036179
Pontotoc7003109
Warren6872178
Panola6768135
Neshoba6732210
Marshall6686142
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Union640898
Pike5933156
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George510380
Prentiss505385
Tippah492783
Itawamba4857107
Scott478199
Adams4771125
Tate4765117
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Copiah457095
Yazoo456692
Simpson4554117
Wayne443172
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Marion4279112
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Stone365766
Jasper340866
Attala338790
Winston317892
Chickasaw316167
Clay312578
Clarke301295
Calhoun285949
Holmes271889
Smith269452
Yalobusha244247
Tallahatchie232053
Greene224749
Walthall221866
Lawrence219141
Perry213456
Amite209857
Webster206248
Noxubee188743
Montgomery181857
Carroll174941
Jefferson Davis173843
Tunica163339
Benton153139
Kemper145041
Choctaw136727
Claiborne134439
Humphreys132139
Franklin126029
Quitman107628
Wilkinson106139
Jefferson96934
Sharkey65321
Issaquena1957
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Alabama Coronavirus Cases

Cases: 845761

Reported Deaths: 16119
CountyCasesDeaths
Jefferson1161862004
Mobile742411381
Madison53315732
Shelby38351369
Baldwin38104589
Tuscaloosa36052641
Montgomery34492781
Lee25590263
Calhoun22598518
Morgan22459406
Etowah20026518
Marshall18790316
Houston17741425
St. Clair16904358
Limestone16153219
Cullman16067303
Elmore15912294
Lauderdale14991306
Talladega14209299
DeKalb12985269
Walker12067380
Blount10729192
Autauga10526157
Jackson10170194
Coffee9425192
Colbert9341208
Dale9024192
Tallapoosa7273201
Russell708865
Chilton7042170
Escambia6956143
Covington6943195
Franklin6338108
Chambers5785142
Marion5413130
Dallas5295209
Pike5123109
Clarke484886
Lawrence4831129
Winston4780110
Geneva4643136
Bibb434594
Barbour369980
Butler3439100
Marengo342393
Monroe337466
Randolph334867
Pickens333988
Fayette330085
Henry320766
Hale318489
Cherokee318363
Crenshaw260777
Washington256952
Cleburne254560
Lamar251953
Clay251169
Macon245064
Conecuh193162
Coosa185547
Lowndes178268
Wilcox177638
Bullock152545
Perry141840
Sumter139241
Greene130245
Choctaw93228
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