It’s been an earnings season for US banks.
Wells Fargo’s fourth-quarter 2024 financial results were no different, with the lender posting strong guidance and better-than-Wall Street-expected earnings.
But as the bank’s leadership pointed out on an investor call on Wednesday (15 January), the quarter was crucial for a different reason than just financial: it marked a significant turning point in the bank’s commitment to risk management and compliance.
“Building the right risk and control infrastructure remains our top priority, and we will continue to invest in this important work,” CEO Charlie Scharf told investors.
In September, Wells Fargo signed a formal agreement with the Office of the Comptroller of the Currency (OCC) to correct deficiencies in the bank’s anti-money laundering (AML) and financial crime risk management practices.
“Early last year, the OCC terminated a consent order issued in 2016 related to sales practices. Closing this order was a significant milestone and is confirmation that we operate very differently today,” said Scharf, noting that it was “the sixth approval order completed by our regulators since I joined Wells Fargo.” .
With these six regulatory approval orders resolved since 2019, Wells Fargo is seeking to make clear that improving its risk management and compliance infrastructure remains a cornerstone of its operational strategy. This is vital as the company seeks to strengthen its governance and ensure compliance with regulatory standards.
However, the company acknowledged that it is not yet done with its regulatory work, stressing that embedding a robust operational risk culture is still a work in progress.
Read more: Wells Fargo CEO More Confident in Bank’s Compliance Checks
Risk Management and Regulatory Compliance as Priorities
Wells Fargo continues to channel significant resources into compliance. These investments are critical to achieving long-term regulatory goals, while also positioning the company for sustainable growth.
“There are three main areas where we expect to invest: growing technology spending, including investment in infrastructure and business capabilities; other investments; and expected merit increases in discretionary performance-based compensation,” executives said.
“While we are not done, I am confident that we will successfully complete the work required in the consent orders and instill an operational risk and compliance mindset in our culture,” Scharf said.
The company said it has been intentional about rebuilding its internal culture to align with a more compliance-oriented mindset. This includes revamping its incentive structures to avoid past missteps, particularly in branch operations.
Beyond regulatory compliance, Wells Fargo identified cybersecurity as a critical area of risk management. The company emphasized the growing complexity of cyber threats and the importance of being prepared to handle them.
“The biggest risk that we have that we spend the most time talking about is cyber at this point … that’s why we spend so much time on it and have the level of investment that we have and put the resources into it,” Scharf said. . .
This shift underscores a broader lesson: compliance and risk management are not at odds with growth. Instead, aligning incentives with a culture of integrity can catalyze both.
See also: Compliance shifted from cost center to growth engine in 2024
Financial Performance
For all of 2024, the bank noted that over 2.4 million new credit card accounts were opened, contributing to strong spending growth (up $17 billion year-over-year). Net loan charge-offs were stable year-over-year but increased 4 basis points compared to Q3 2024, reflecting higher losses in the credit card portfolio.
The company saw significant progress in earnings, supported by strong growth in fee-based income (up 15%), which offset the decline in net interest income (NII). However, NII increased by $146 million (1%) from Q3 2024, marking the first consecutive increase since Q4 2022. This was driven by higher customer deposit balances, which reduced reliance from higher cost funding sources.
Average deposits increased compared to Q3 2024 and Q4 2023, reflecting stabilization in migration trends toward higher yield products and a reduction in corporate treasury CDs.
Non-interest expense fell 12% year-over-year, driven by lower FDIC assessments and severance costs, as well as ongoing efficiency initiatives.
The company’s shares rose about 7% since reporting on the news of its results.
