Wells Fargo expects to cut jobs in new efficiency push

The exterior of a Wells Fargo Bank in Palo Alto, Calif.
The exterior of a Wells Fargo Bank in Palo Alto, Calif. AP

Wells Fargo expects to trim staff as the bank works to curb expenses that are rising partly because of a sales scandal that erupted last fall.

The San Francisco-based bank, which has a major Charlotte presence, on Thursday reported flat first-quarter earnings, and executives made it clear they want to tamp down expenses that rose more than $750 million, or 6 percent, from the same period a year ago.

“Operating at this level is not acceptable,” CEO Tim Sloan said in a conference call with analysts. “We are committed to improving our efficiency.”

Wells Fargo is one of many big banks to take steps to cut costs during a prolonged period of low interest rates that have squeezed profits. But it’s also facing additional pressure as it racks up consulting fees and other expenses related to its unauthorized accounts scandal.

The bank expects to reduce staff through the centralization and streamlining of various processes, and by cutting back in the mortgage business, where loan volumes are declining from a recent rise in interest rates, chief financial officer John Shrewsberry said during the call. The bank said it will continue to add in areas such as technology.

Shrewsberry did not provide any details on how many jobs could be cut or added.

Since last year, the bank’s total employment has jumped by more than 4,000 to 272,800, as it added technology, risk and other workers. The bank has more than 24,000 in Charlotte, making it the company’s biggest employment hub.

Wells Fargo has previously said it plans to reduce annual expenses by about $2 billion by the end of 2018, with those savings getting plowed back into customer service, risk management, cyber security and other initiatives. The bank now plans to outline new cost-cutting initiatives at its May 11 investor day, executives said.

“We’ll be talking about additional efficiencies that would fall to the bottom line beyond that $2 billion,” Sloan said. The bank had total noninterest expenses of about $52.4 billion in 2016.

In September, Wells Fargo agreed to pay $185 million in fines to settle allegations that thousands of employees created more than 2 million potentially unauthorized customer accounts to meet aggressive sales goals. The scandal spurred a management shake-up and multiple investigations.

Wells Fargo CEO John Stumpf faced another round of questioning Thursday by the House Financial Services Committee over his bank's creation of fake accounts. "I am fully accountable for all unethical sales practices in our retail banking business,"

On Monday, the bank’s board issued a 113-page report that placed blame for the scandal squarely on former community bank head Carrie Tolstedt and former CEO John Stumpf, both of whom left the company last fall. The directors themselves are likely to face tough questions from investors at the company’s April 25 annual shareholders meeting.

On Thursday, Wells said it racked up around $80 million in expenses related to the scandal during the first quarter and that it expects to spend around that much in future quarters. The costs include fees for consultants who are making sure the bank is adhering to regulatory compliance orders.

In its report, the Wells board found that the bank’s decentralized business model allowed improper activities to take place in the community bank with little oversight from higher-up officials. Centralizing functions such as risk management will cost money now but could produce savings over the long run, Sloan said.

“Right now the most important job of this company is rebuilding trust,” he said.

For the quarter, the bank had an efficiency ratio of 62.7 percent, above its target range of 55 percent to 59 percent. The ratio means it cost the bank nearly 63 cents in expenses to bring in $1 of revenue.

Another way the bank plans to reduce costs is by lowering its branch count, now around 6,000. It has previously said it plans to close 200 branches per year over two years, and Shrewsberry said the company is on track to meet that goal this year.

Wells’ efficiency push comes as the bank posted a first-quarter profit of $5.5 billion, the same as a year ago, as profits dipped in the community banking unit where the scandal was centered.

Earnings per share were $1.00, up from 99 cents a year ago and above the 97 cents expected by analysts polled by Zacks Investment Research. Total revenue was $22 billion, down 1 percent and below the $22.3 billion expected by analysts.

Profits in the community banking unit fell to $3 billion, from $3.3 billion a year ago, while net income in the bank’s other two main business lines – wealth management and wholesale banking – were up. New checking account openings fell 35 percent in March from a year ago, while new credit card applications dropped 42 percent.

Wells Fargo was one of three big banks to report first-quarter earnings Thursday.

JPMorgan Chase said its first-quarter profit rose 17 percent to $6.4 billion, or $1.65 per share, while Citigroup’s profit also climbed 17 percent to $4.1 billion, or $1.35 per share. Charlotte-based Bank of America reports results on Tuesday.

Wells’ shares fell more than 3 percent on Thursday to $51.35, on a down day for bank stocks.

Rick Rothacker: 704-358-5170, @rickrothacker