Wells Fargo faces $1 billion fine

NEW YORK: Two U.S. regulators have proposed Wells Fargo & Co pay $1 billion in penalties to resolve probes into auto insurance and mortgage lending abuses at the third largest U.S. bank, overshadowing its first quarter results.

The San Francisco-based lender, which reported a quarterly profit, said it may have to restate results to reflect the final settlement.

The proposed penalties were reported earlier this week by Reuters.

Analysts said that while the $1 billion penalty would not make a significant dent to its balance sheet, it may take the bank some time to repair the damage to its reputation.

Shares of the bank fell 3.4 percent to $50.89."Operationally, Wells Fargo can recover, but reputationally and how a billion dollars will weigh on them - only time can tell," said Art Hogan, chief market strategist at B. Riley in Boston.

"Companies have come back from worse than this but right now they´re still in the eye of the storm," he added.

The bank, still smarting from a prolonged sales scandal in its retail banking business, found inconsistencies at its auto lending and mortgage in the summer of 2017 - leading to further probes by regulators.

To appease investors and regulators, the bank overhauled its operational structure, shook up its board and hired a new compliance officer.

But this failed to impress the U.S. Federal Reserve, which imposed restrictions in February on the bank´s growth, forbidding it to expand its balance sheet beyond 2017 levels until it makes internal changes that addressed risk management.

"A bank´s balance sheet is the engine for profit growth," said Kyle Sanders, analyst at Edward Jones.

"The constraints on Well´s ability to take on deposits and make new loans will likely result in lagging earnings growth for Wells relative to peers in the near-term.