Fitch Ratings said Wells Fargo & Co. recent earnings results reflect the various headwinds the banking giant is still facing.
Wells posted fourth-quarter net income applicable to common shares of $5.71 billion, slightly lower than the year-ago figure of $5.74 billion. For full year 2018, net income was $20.69 billion, compared to $20.55 billion in 2017.
Wells has a "very consistent and stronger earnings profile" relative to peers, but its recent profile is "no longer a positive outlier relative to other large regional banks," the rating agency said.
The banking giant recorded a $614 million gain on the sale of $1.6 billion of Pick-a-Pay purchased credit-impaired mortgage loans in the recent quarter. "[Wells] has been active in selling these loans over the past year," Fitch said.
The rating agency noted that operating losses remain elevated at $432 million in the fourth quarter of 2018, including a $175 million accrual related to a deal reached with all State Attorneys General for previously disclosed retail sales practices, auto and mortgage rate lock matters. This was appreciably above Wells' view of typical quarterly run-rate of approximately $150 million, Fitch said.
Operating losses will remain high in the near term as Wells deals with multiple regulatory concerns, but the bank will recover and maintain its dominant franchise in the long run, Fitch said.
On Wells' asset size cap, Fitch expects Wells to meet the regulatory requirements of the Federal Reserve's consent order and that the order will be lifted by the end of 2019. Failure to lift the asset cap would likely be viewed negatively by the rating agency.