If you needed a stark reminder of the different trajectories that Charlotte’s two biggest banks are on, just look at their latest financial results.
Charlotte-based Bank of America last month reported its largest annual profit. Citing those results, a column in Forbes dubbed CEO Brian Moynihan “Wall Street’s Most Unlikely Star,” and CNBC commentator Jim Cramer called the bank the “Amazon” of financial stocks — “but they make money.”
It’s a different story for Wells Fargo, which is based in San Francisco but has its largest employee base in Charlotte.
Wells reported a only a 1 percent rise in annual profit last year after agreeing to billions of dollars in fines as it recovers from a series of scandals. Those began with 2016 revelations that bankers opened as many as 3.5 million unauthorized accounts to meet high-pressure sales goals. Last month, Wells launched its second marketing campaign in less than a year as it tries to rebuild trust with customers.
And in a string of tweets last month, Democratic Sen. Elizabeth Warren of Massachusetts, a prominent member of the Senate Banking Committee, reiterated her calls for CEO Tim Sloan to be fired, writing that his “hands are too dirty from overseeing years of scams and scandals.”
For Charlotte and its large financial sector, the two banks’ dissimilar situations could have implications for the region’s economy, said Michael Walden, economics professor at N.C. State University. Combined, the banks employ about 40,000 people in the metro area.
If Bank of America can continue posting strong financial results, Walden said, that may help it maintain its local employment of roughly 15,000. But faced with industry pressures to automate and compete with banking start-ups appealing to young customers, he said the bank also isn’t likely to grow its Charlotte employment significantly. The bank said it’s held its Charlotte employment steady since the financial crisis.
At Wells Fargo, more Charlotte-area layoffs are likely as the bank continues to address its challenges, Walden said.
“The question is how many,” he said. “But I wouldn’t expect growth.”
A crucial year
It looks like Bank of America and Wells Fargo are playing out a version of trading places.
Coming out of the financial crisis about a decade ago, Bank of America needed to repair its image and finances. At the time, it was saddled with losses in its mortgage unit and facing investigations from federal and state officials into claims it hid Merrill’s large losses from shareholders before they approved the deal.
Since Wells’ 2016 scandal erupted, its stock price has been virtually flat, compared with a roughly 80 percent jump at Bank of America. The KBW Bank Index, which tracks shares of 24 large U.S. banks, is up about 34 percent.
On Tuesday, Wells shares closed at $49.27. Bank of America’s closed at $28.78.
“When Bank of America was a damaged brand, it was Wells that was considered the darling,” said William Klepper, a professor at New York’s Columbia Business School, who has written a case study on Wells Fargo’s 2016 scandal.
After surviving the financial crisis on firmer footing than some of its big-bank peers, Wells was posting record profits. It was healthy enough to agree to buy Charlotte’s Wachovia in 2008 as that bank neared collapse, a move that made this region Wells Fargo’s largest employment hub.
“Bank of America’s performance and brand under Moynihan’s leadership has been able to recover from its crisis,” Klepper said. He said the damage that’s been done to Wells Fargo’s brand is similar to the hit Bank of America’s image took from the financial crisis.
This year will be a crucial one for Wells Fargo to show shareholders that all the major problems at the bank have been disclosed, Klepper said. Regulators and authorities have continued to investigate the company even after the accounts scandal came to light.
“The shareholders are basically saying, ‘Come on, you’ve already destroyed value. Stabilize this thing,’ ” he said. “And I think that’s what this year’s going to do.”
What’s next for BofA
Moynihan’s accomplishments have been winning him accolades. A column last month on financial industry blog Seeking Alpha was headlined “Bank Of America Is Back.”
It’s markedly different than what was said about him coming out of the financial crisis.
At the time, critics wondered whether an insider could provide a fresh start at the bank. Bank of America’s board had elevated Moynihan to CEO after Ken Lewis announced plans in 2009 to step down as he came under fire for the Merrill Lynch purchase.
Moynihan began shedding businesses and cutting jobs to streamline the company and chop costs — steps that affected Charlotte. One of the bank’s largest job cuts to hit the region was in 2014, when it announced 540 layoffs in a unit for troubled mortgages.
Over the past decade, Moynihan has also resolved costly crisis-era legal matters hanging over the bank. He continues to stick to a plan of “responsible growth,” a strategy he has said involves keeping the bank’s risks in check.
“So many things are vastly improved at Bank of America since the financial crisis,” said James Shanahan, a bank analyst at Edward Jones.
Shareholders have benefited from the results.
In early 2010, the bank’s dividend was only 1 cent per quarter after it was slashed from 64 cents during Lewis’ tenure to help the bank weather the crisis. Today it’s 15 cents. In early 2010, the bank’s shares were trading at about $15. Now they’re trading around twice that price, though the stock remains below its peak of more than $55 in 2006.
Despite its successes, Bank of America has come under investor scrutiny for not generating more investment banking business, an issue Moynihan has said the bank is addressing.
Future profits could also be weakened by having to pay customers more for their deposits, Shanahan said. Banks everywhere have been facing growing pressure to increase those interest rates, which they have kept low in recent years even as they’ve raised the interest they charge on loans.
“That seems like the biggest earnings risk for Bank of America in the near term,” Shanahan said. “We’re not giving the company the all-clear here. We’re still a little bit cautious on the earnings outlook.”
Moynihan’s ongoing focus on cost-cutting could also mean more job cuts. Since becoming CEO, he has reduced the bank’s employment by more than 85,000, including through attrition.
Speaking last month at the World Economic Forum in Davos, Switzerland, Moynihan noted that the job-cutting pace has slowed at the bank, which continues to add customer-facing employees. But he said the bank will keep shedding jobs through automation.
“That’s going to go on forever,” he said. “What number of people that will be, I don’t know.”
Wells layoffs coming
Charlotte has already been hit with Wells Fargo layoffs in recent months as it looks to slash costs in the wake of its scandals, which have added to its legal and other expenses.
In November, Wells announced 116 local job cuts as part of previously announced plans to trim its total workforce by about 5 to 10 percent over the next three years. A reduction of 10 percent could involve as many as 26,450 jobs companywide, based on Wells’ total employment figures around the time of the announcement.
Wells has said the initiative is designed to streamline the company and make it more customer-focused.
Kendall Alley, Wells Fargo’s region bank president for Charlotte, told the Observer the company did not rule out additional layoffs in Charlotte. Wells employs about 25,700 in the area — up from about 25,000 a year ago. Alley said he didn’t have specifics on numbers or job types but added that the bank does not foresee “significant” cuts in the region.
Alley also emphasized that Wells Fargo expects to continue growing its overall employment in the region, where he noted the vast majority of the bank’s business lines are represented.
“Charlotte continues to be a major hub for what Wells Fargo’s strategy is,” he said. “We continue to have people moving in here because of our density of businesses.”
What’s next for Wells
At Wells Fargo, Tim Sloan remains under pressure to move his company past the scandal over unauthorized accounts. Progress has been complicated by new disclosures from the bank of customer harm in other parts of the company.
“I think he’s trying very hard,” Klepper, the Columbia professor, said of Sloan. Sloan was promoted from chief operating officer to CEO in 2016 when then-chief executive John Stumpf retired after the accounts scandal erupted.
“He (Sloan) would not have been my first choice to try and rebuild a brand that has been damaged by virtue of what I would call unethical behavior and just a toxic culture,” Klepper said, adding that it’s hard for a high-ranking insider to turn around a company beset with scandals.
Under Sloan, the company says it has made sweeping changes to improve its culture and business practices.
Those steps include developing new processes for managing customer complaints and centralizing functions such as corporate risk and human resources to provide greater oversight, according to a report Wells issued last month.
Speaking to CNBC’s Cramer, Sloan said last month the company has also made changes to its leadership team. He also noted that the company’s fourth-quarter 2018 earnings per share were the highest in Wells’ history and that the bank grew primary-checking accounts last year.
Sloan said he thinks he’s the right person to run the company. “We’ve got more work to do, but we’re on the right path,” he said.
Sister Nora Nash, of the Sisters of St. Francis of Philadelphia, who has been critical of Wells’ scandals and pushed for last month’s report, praised Sloan.
“He’s not an absent leader,” Nash said, adding that the company has shown “tremendous transparency” as it works to fix its problems.
But questions remain about the bank’s future as it continues to operate under an unprecedented Federal Reserve cap on its growth, a restriction the regulator said was in response to “widespread consumer abuses and other compliance breakdowns” at the bank.
Wells had initially said it expected the cap to be lifted in the first half of the year. But last month, Sloan said it could remain in place through the end of this year.
The bank also continues to draw scrutiny from some Democrats, such as Sen. Warren and California Rep. Maxine Waters, who became head of the House Financial Services Committee in January, when Democrats took control of the House.
Last fall, Democrats on the Senate Banking Committee called for Sloan and Wells Chairwoman Betsy Duke to testify before Congress on the bank’s “rampant consumer abuses.” It’s unclear where that request stands. A spokeswoman for the committee said there is no Wells Fargo hearing scheduled at this time.
In a November interview with Bloomberg, Waters mentioned the accounts scandal and more recent disclosures of other ways customers have been harmed.
“So, we’re going to talk about that,” she said. “We’re going to meet with them. We’re going to understand what’s going on.”
For his part, Kendall Alley, the bank’s region president for Charlotte, said the bank is seeing customer growth in the region and other positive signs in the wake of the scandals.
He also noted that the bank continues to donate to various causes in the area. That includes last month’s announcement of a $150,000 donation from the Wells Fargo Foundation to send about 30 Charlotte-Mecklenburg Schools principals to a Harvard University urban educators seminar this summer.
“I’m proud of what we’ve done here in Charlotte,” Alley said. “There’s no question we’re a better bank today than we were three years ago.”