A 15-year legal battle has finally come to an end for Truist Financial, but it's not without its costs. The bank has agreed to pay a hefty price to settle a class-action lawsuit over overdraft fees, and the impact on their earnings is significant.
Let's dive into the details. Truist's fourth-quarter earnings took a hit, with a $130 million dent from legal fees and an additional $63 million for employee severance packages. This settlement, which still needs court approval, resolves a long-standing class-action suit about overdraft fees that originated with one of Truist's predecessor banks.
But here's where it gets controversial: the plaintiff, who sadly passed away in 2014, argued that SunTrust Banks, an Atlanta-based entity, had charged interest disguised as overdraft fees, which violated Georgia's maximum interest rate laws. The plaintiff further alleged that SunTrust had broken civil and criminal usury laws, seeking refunds of up to $452 million for the challenged overdraft fees.
Truist's appeal to the U.S. Supreme Court was recently denied, leaving the bank with no choice but to settle. This agreement will cost them up to $240 million, wiping out a significant portion of their quarterly profits. The settlement adds $130 million to Truist's fourth-quarter expenses, reducing earnings per share for the quarter and the year.
And this is the part most people miss: the bank is also dealing with the cost of restructuring. Truist's severance costs, which have totaled $358 million over the past two years, are part of their ongoing efforts to reduce expenses. Chief Financial Officer Mike Maguire has stated that these charges should be lower in 2026, but the bank will still face some severance-related costs.
The bank's headcount has fluctuated, with a slight decline in the fourth quarter of 2025. However, Truist's strategy is to move away from temporary contract workers and hire full-time employees, which could result in a higher headcount but lower costs per employee.
In terms of overall performance, Truist's net income for the quarter was $1.35 billion, showing a 6.1% increase year over year. Revenue also grew, totaling $5.25 billion. Despite these positive figures, the bank's earnings per share missed analysts' estimates by 9 cents.
Looking ahead, Truist CEO Bill Rogers remains optimistic, reiterating the bank's expectation to achieve a 15% return on tangible common equity for 2027. For 2025, this metric came in at 12.7%. When asked about the post-2027 outlook, Rogers was cautious, citing potential changes in the economic environment and the company's capital position.
In the meantime, Truist plans to boost its share buybacks this year, with a total of $4 billion expected, including $1 billion by the end of March. This strategy is in line with their commitment to returning value to shareholders.
So, what's your take on this settlement and its impact on Truist's future? Do you think the bank made the right decision, or could they have handled it differently? Share your thoughts in the comments below!
