Wells Fargo & Co (WFC.N), the third-largest U.S. bank by assets, reported its fifth straight drop in quarterly profit on Friday as it works to recover from a bogus-accounts scandal.

The San Francisco-based bank has been dealing with multiple lawsuits and a sharp drop in account openings after it settled with regulators in September over charges that its employees created 2 million accounts without customers' consent.

Net income applicable to shareholders fell 6.4 per cent to US$4.87 billion, or 96 cents per share, in the fourth quarter, from US$5.20 billion, or US$1.00 per share, a year earlier.

It was the first full quarter for Chief Executive Timothy Sloan, who took over after John Stumpf resigned in the wake of the scandal.

The bank's results diverged from rivals JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N). Both posted significantly higher earnings on Friday on the back of higher interest rates and market gains since the U.S. election in November.

The scandal hammered Wells Fargo's stock for roughly two months. It also forced the bank to change its compensation plan and scrap sales targets in order to emphasize customer service.

CEO Sloan said he was pleased with the progress the bank has made in customer remediation as well as its ongoing review of sales practices across the company.

The bank is conducting various internal inquiries to determine who else may be responsible for the sales problems, and has said it will make amends in various ways, from compensating customers whose credit scores may have been harmed to welcoming back employees who may have been fired for the wrong reasons.

Wells Fargo's non-interest expenses rose 4.9 per cent to US$13.22 billion, reflecting higher legal costs.

HURT BY HEDGES

Excluding a loss related to hedge accounting, Wells Fargo earned US$1.03 per share. Bank of America also took a US$200 million hit to net interest income due to hedge ineffectiveness.

The average analyst estimate was US$1.00 per share, according to Thomson Reuters I/B/E/S.

Wells Fargo has positioned its balance sheet for interest rates to be lower for longer, so it was not as prepared as some other U.S. banks to take advantage of rising U.S. interest rates.

The bank said its hedge accounting losses in the quarter were driven by increased interest rates and foreign currency fluctuations.

Like other U.S. bank stocks, Wells Fargo's shares have risen sharply since the election of Donald Trump as U.S. president.

The bank's shares were up 1.3 per cent at US$55.21 in early trading, well above their low of US$43.55 in the aftermath of the settlement announcement.

The bank is the largest U.S. mortgage lender. Its mortgage banking revenue fell 14.6 per cent, even as home loan originations rose 53.2 per cent.

Revenue was little changed at US$21.58 billion, short of the average estimate of US$22.45 billion.