The closing of a Wells Fargo & Co. unit will result in nearly 4,000 layoffs and the elimination of nonprime residential originations.
A restructure of Wells Fargo Financial Inc. will result in the company’s exit from the origination of nonprime mortgages for its own portfolio, a news release today said.
The unit reportedly originated less than 2 percent of Wells Fargo & Co.’s $76 billion in residential production during the first quarter. Based on last year’s $420 billion in company-wide fundings, the unit likely originated between $4 and $8 billion during 2009.
“Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years,” Wells Fargo Financial President David Kvamme stated in the news release. “But the economics of a separate Wells Fargo Financial channel are no longer viable.”
Around 3,800 of the unit’s 14,000 employees are impacted by the restructuring. Approximately 2,800 of the layoffs will occur over the next 60 days, while another 1,000 are estimated within a year.
Layoffs are likely to be most severe in Des Moines, Iowa, where Wells Fargo Financial has its headquarters.
Remaining employees will be re-assigned to other businesses within the Wells Fargo organization.
“We know that this decision will be extremely difficult for those dedicated team members and their families who will be affected,” Kvamme said. “We have already identified positions for thousands of our employees and are committed to finding new positions for as many impacted team members as possible.”
The restructuring will also result in the closing of 638 stores.
The remaining consumer and commercial loan products offered by Wells Fargo Financial will be handled through the bank’s 6,600 community bank stores or its 2,200 Wells Fargo Home Mortgage locations. That transition is expected to be completed within the next 12 months.
The pre-tax hit to second-quarter earnings was estimated a $137 million, while charges are expected to ultimately reach $185 million.
