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By Noor Zainab Hussain and Hannah Lang(Reuters) -Wells Fargo & Co on Friday reported a 50% decline in profit for the fourth quarter, missing analysts’ estimates, as the bank racked up more than $3 billion in costs related to a fake accounts scandal and boosted loan loss reserves for a potential economic slowdown.The bank’s shares were down nearly 4% in premarket trade.The fourth-largest U.S. lender reported a profit of 67 cents per share for the quarter ended Dec. 31, compared with $1.38 per share a year earlier. On an adjusted basis, the bank earned 61 cents per share, compared with analysts’ estimates of 66 cents per share, according to Refinitiv IBES data.Provision for credit losses was $957 million in the quarter, compared with a $452 million release a year earlier.Provision for credit losses in the quarter included a $397 million increase in the allowance for credit losses primarily reflecting loan growth, as well as a less favorable economic environment, the bank said.Though Wells Fargo’s operating losses were “one-offs” related to litigation and regulatory and customer remediation, its results were disappointing, said Thomas Hayes, chairman and managing member at Great Hill Capital.”Of the major banks, Wells is the weakest of the reports today,” he said. “They continue to underwhelm.”Banks are building up rainy day funds as U.S. Federal Reserve policymakers decide on the future path of interest rates.After aggressively raising rates in an attempt to bring soaring inflation to heel, Fed policymakers say they are encouraged by the recent slowing in jobs and wage growth that could temper inflation.The outlook for big U.S. banks has been further clouded by the Russia-Ukraine conflict and fading stimulus. Higher borrowing costs have also softened demand for mortgages and car loans, crimping banks’ revenues.Meanwhile, a slump in dealmaking has weighed on banks’ investment banking businesses, which had a blockbuster 2021.Story continuesWells Fargo is still working to contain the fallout from a six-year-old scandal over its sales practices that led to hefty fines and an asset cap imposed by the Fed on the lender’s ability to expand its balance sheet.In December, the U.S. Consumer Financial Protection Bureau hit the bank with the watchdog’s largest ever civil penalty as part of a $3.7 billion agreement to settle charges over widespread mismanagement of car loans, mortgages and bank accounts.The bank said its estimate of reasonable possible losses in the fourth quarter is around $1.4 billion, down from $3.7 billion as of the end of September.”We put a lot of issues behind us over the last couple of quarters,” said Wells Fargo Chief Financial Officer Mike Santomassimo on a call with reporters.Overall, non-interest expenses rose to $16.2 billion from $13.2 billion a year earlier.In the fourth quarter, the bank posted $3.3 billion in operating losses related to litigation, customer remediation and regulatory matters associated with the scandal over its sales practices.Chief Executive Officer Charlie Scharf is working on fixing the bank’s problems after it spent billions on lawsuits and regulatory fines.As part of his turnaround plan, Scharf aims to cut costs, scale back Wells Fargo’s huge mortgage business and expand its investment banking business.”While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we have made significant progress, and are moving forward,” Scharf said in a release.Art Hogan, chief market strategist at B. Riley Financial, called Scharf’s comments constructive.”Wells Fargo results were a combination of higher-than-expected expenses for the fourth quarter as well as lower-than-expected revenue,” he said.The company has struggled over the past few years to satisfy regulators that it has fixed its problems and repaid customers who were harmed by its aggressive sales practices.Wells Fargo’s net-interest income rose 45% to $13.4 billion in the quarter. Total revenue fell to $19.7 billion from $20.9 billion a year earlier.(Reporting by Noor Zainab Hussain in Bengaluru and Hannah Lang in Washington; Additional reporting by Bansari Mayur Kamdar;Editing by Shounak Dasgupta, Nick Zieminski and Jonathan Oatis)

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