Wells Fargo & Co. expects to trim staff as the bank works to curb rising expenses that include costs associated with its sales scandal, executives said after releasing flat first quarter earnings on Thursday.
The San Francisco-based bank-holding company said expenses in the first three months of the year rose 6 percent from a year ago to $13.8 billion, driven by higher employee costs and spending related to the scandal.
That boosted the bank’s efficiency ratio — a measure of how much money it spends to make $1 — to what Chief Executive Officer Tim Sloan called “unacceptable” levels.
During a conference call with analysts, Chief Financial Officer John Shrewsberry said the bank expects to reduce staff through the centralization and the streamlining of various processes, and by cutting back in the mortgage business, where loan volumes are declining amid higher interest rates.
The bank said it will continue to add in areas such as technology and infrastructure.
Shrewsberry did not provide any details on how many jobs could be cut or added.
During the first quarter, the bank’s total employment increased by about 3,700 to 272,800 from the end of December. The bank has more than 24,000 in Charlotte, North Carolina, 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 to be re-invested in customer service, risk management, cybersecurity and other initiatives. The bank plans to outline additional cost-cutting initiatives at an investor day event next month, executives said.
“We’ll be talking about additional efficiencies that would fall to the bottom line beyond that $2 billion,” Sloan said in the conference call.
In September 2016, 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 led to a management shake-up and spurred multiple investigations.
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 spent around $80 million on expenses related to the sales scandal during the first quarter and that it expects to spend around that much in future quarters. The costs include expenses for consultants making sure the bank is adhering to regulatory compliance orders.
A key finding in the board’s report was that the bank’s decentralized business model allowed improper activities to take place in the community banking unit with little oversight from higher-up officials. Centralizing functions such as risk management is costly 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. “We can’t sacrifice short-term efficiency for doing that.”
Another way the bank plans to reduce costs is by lowering its branch count. 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 in the first three months of the year, 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 & Co. said its first-quarter profit rose 17 percent to $6.4 billion, or $1.65 per share, while Citigroup Inc.’s profit also climbed by 17 percent to $4.1 billion, or $1.35 per share.
Charlotte-based Bank of America Corp. reports results on Tuesday.
