Slumping US financial giant Wells Fargo badly missed earnings estimates Friday due to $1 billion in new legal costs and higher overall expenses, raising fresh questions about the scandal-plagued bank.

Wells Fargo reported flat or lower revenues in many key consumer banking segments in the aftermath of a fake accounts scandal that led to a shakeup of company leadership and numerous government probes and lawsuits.

Shares fell sharply after the report, which also showed a drop in overall loans at a time when rival banks saw increases. Wells Fargo set aside $450 million for hurricane-related liabilities, a much higher sum than other large banks.

Chief executive Tim Sloan, while conceding there was "more work to do," said on a conference call with analysts the company was "absolutely on the right path."

Earnings fell 20.2 percent to $4.2 billion.

Revenues dropped 1.8 percent to $21.9 billion.

Wells Fargo missed analyst expectations for both revenue and earnings-per-share.

Other large banks that have reported thus far this quarter have bested expectations due to higher interest rates, which permits them to charge customers more for loans.

Wells Fargo also benefited from higher interest rates, but investors were unnerved by the $1 billion in charges related to regulatory investigations for "pre-crisis mortgage related regulatory investigations."

Wells Fargo, the nation's largest mortgage lender, has disclosed a number of probes into its mortgage practices involving government agencies, including the Department of Justice and the Consumer Finance Protection Bureau.

The Justice Department has sought "information regarding the origination, underwriting and securitization of residential mortgages, including sub-prime mortgages," Wells Fargo said in a July securities filing.

Litigation "remains a possibility," the company added.

Earnings in the community banking business fell with fewer mortgage and auto loan originations and flat credit card penetration.

Wells also reported relatively flat mobile and digital accounts, a category that grew more impressively at Bank of America, which reported results earlier Friday.

The bank reported an 8.2 percent rise in noninterest expenses to $14.4 billion, as it ramped up compliance efforts following the fake accounts scandal.

Sloan told analysts that while the scandal meant lower growth in consumer banking categories, the bank is "moving forward" in wholesale banking and wealth management, divisions with flat or slightly higher profits in the third quarter.

Sloan was pressed by an analyst for a timeframe on when he will be ready to "put the stake in the ground" and declare the company free of major trouble for the foreseeable future.

"I don't have a specific date," Sloan said. "We've made a lot of progress. I can't commit that we've finished everything but we're very far along."

Shares fell 3.1 percent to $53.49 in afternoon trading.

Source: AFP