Scandal has its costs — and as Wells Fargo shareholders learned this week at investor day, those costs can be steep and ongoing.
Wells Fargo & Co announced that it has doubled its cost-cutting target as a result of expenses incurred in the aftermath of the scandal.
That plan might have come as a greater comfort to their investors, but for the fact that management also indicated that revenue growth continues to be softened by the scandal, which ultimately put downward pressure on the bank’s stock, which fell 1.7 percent during afternoon trading yesterday (May 11).
Wells told investors that it will cut another $2 billion in expenses over the next two or so years above and beyond the $2 billion cost-cutting target management previously announced.
However, much of investor day was about reassuring investors that the worst is really behind Wells. Chief Executive Tim Sloan used the word “unacceptable” at least twice, in reference to prior sales practices and expense levels.
“We had an incentive program and high-pressure sales culture in our community bank that drove behavior that was at times inappropriate and inconsistent with our values,” Sloan said, noting that management “took too long to appreciate the seriousness of the problem.”
As Chief Financial Officer John Shrewsberry began his presentation, he joked to the crowd: “Raise your hand if you’re interested in hearing about expenses at Wells Fargo.”
He said the bank plans to get back into its targeted ratio in the coming years.
As for areas where the bank has been hit particularly hard by the scandal fallout — and by consumers’ increased reluctance to do business with the bank — referrals from branches for personal loans and home-equity loans have dropped off, said Franklin Codel, an executive in the consumer lending unit. That has brought on a 3 percent decline in business in his sector — though the trend does seem to be stabilizing.
The credit card business has also been hurt by the scandal, said Avid Modjtabai, who heads Wells Fargo’s payments, virtual solutions and innovation group. The rate has reportedly started to pick up — though when a return to normal might be expected was not discussed.