Truist Financial Takes a Hit in Q4 Earnings Due to Legal Fees and Severance Costs
Truist Financial, a prominent financial institution, has recently made the headlines due to a significant hit in its Q4 earnings. A substantial portion of this financial setback can be attributed to legal-related fees and severance costs that amounted to $130 million and $63 million respectively. The impact on the company’s earnings was substantial, leading to a drop in profits during the last quarter of the year.
Settling a Long-Running Legal Saga
One of the primary reasons behind the unexpected increase in legal expenses is the resolution of a long-standing legal issue. Truist Financial has agreed to pay up to $240 million to settle a 15-year class-action lawsuit concerning overdraft fees. This lawsuit was initiated by a plaintiff who argued that the overdraft charges applied to his account by Truist’s predecessor bank, SunTrust Banks, were essentially interest charges. The plaintiff further argued that these charges were therefore subject to the maximum interest rate limits under Georgia state law.
The plaintiff’s argument escalated to the level of accusing SunTrust of violating civil and criminal usury laws. He sought class-wide damages, including refunds of up to $452 million for the challenged overdraft fees, along with pre-judgment interest. The U.S. Supreme Court declined to hear Truist’s appeal against a Georgia Supreme Court decision, which was unfavorable to the bank. The decision led to Truist agreeing to the settlement, which added $130 million to the bank’s Q4 expenses. This legal setback wiped out 12 cents of earnings per share for the quarter and 18 cents per share for the year.
Job Cuts and Severance Costs
Another significant blow to Truist Financial’s Q4 earnings was the $63 million in severance costs. As the bank continues its restructuring efforts to streamline its operations, these costs have become a regular part of the company’s expenses. In fact, restructuring charges over the past two years have totaled $358 million, including severance costs, occupancy fees, professional services costs, and outside processing fees.
Truist’s Chief Financial Officer, Mike Maguire, during the company’s Q4 earnings call, stated that restructuring charges are expected to be “lower in 2026, modestly.” However, he clarified that severance-related expenses will continue as the company executes its restructuring plan.
Looking Forward: Truist’s Financial Outlook
Despite the financial setbacks, Truist Financial remains optimistic about its financial performance in the coming years. The bank expects to achieve a return on tangible common equity of 15% for all of 2027. Moreover, the bank plans to repurchase more common shares this year than it did in the previous year, targeting an amount of roughly $4 billion.
The bank’s restructuring efforts, including a shift away from temporary contract workers, is expected to result in cost savings without significantly impacting personnel numbers. Truist Financial is focused on effectively managing its expenses and enhancing its financial performance in the future.
While Truist Financial’s Q4 earnings were disappointing, the bank is looking forward to a more profitable future. With a resolution to the longstanding legal issue and a comprehensive restructuring plan in place, the bank is poised for a financial turnaround that will benefit its stakeholders.
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