Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Someday, Wells Fargo & Co. shareholders may have something to be cheerful about. That's not today.

Bucking a trend set by rivals Bank of America Corp, Citigroup Inc. and JPMorgan Chase & Co., the bank posted a third-quarter earnings miss on Friday. Oddly enough, a mortgage-related regulatory case that preceded the financial crisis is to blame for its poor quarter -- its fake-accounts scandal and malpractices in auto insurance and other services such as online bill-pay haven't proven as detrimental to its bottom line as to its reputation.

Weakest Link
While its two closest rivals are making ground, Wells Fargo has slipped
Source: Bloomberg

For CEO Tim Sloan, who has been repeatedly deemed unfit to lead the bank by Senator Elizabeth Warren, the heat just got turned up. There's now heightened scrutiny on his ability to deliver better profitability, and not simply by ensuring that the lender meets its revised 2017 expense target (which it expects to, despite the bank's $1 billion of litigation costs, which blew out its efficiency ratio to 65.5 percent in the latest quarter). 

From First to Last
Wells Fargo was once the best U.S. bank at cost containment. That's no longer the case and continued revelation of missteps leaves the door open to future fines and regulatory action.
Source: Bloomberg

At 9.1 percent, Wells Fargo's return on equity is its worst since 2010 and way below its targeted range of 11 to 14 percent, which had previously never been a stretch. 

Trading Places
Wells Fargo -- once the most reliable U.S. bank -- has lost the title for now
Source: Bloomberg

If there's a small silver lining in Wells Fargo's results, it's that the bank's net charge-offs actually fell year-over-year compared to rivals JPMorgan, Citi and Bank of America, which each set aside larger-than-expected loss reserves. But that may also be a function of the bank's scandal-related distractions, which could have had a hand in tempering its pursuit of loan growth. That inaction -- even if beneficial -- shouldn't be applauded. 

Not Good Enough
Wells Fargo's average loan balance is heading in the wrong direction
Source: Company presentations

Without the surprise pre-crisis charge, Wells Fargo wouldn't have underperformed rivals as substantially, although its revenue decline is still worrying. As it is, with all its scandal-plagued troubles, the bank needed this earnings miss like a hole in the head.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Gillian Tan in New York at

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