Wells Fargo poised to sell more businesses as it streamlines following accounts scandal
A customer uses a Wells Fargo ATM in New York in 2016. (Patrick Sison / Associated Press)
& Co. may not be done shedding assets as it rethinks its business following its sham-accounts scandal.
After announcing the sale of both its shareholder-services and commercial insurance subsidiaries in the last month, the San Francisco-based bank is considering cutting even more amid a broad review of its operations.
Chief financial officer John Shrewsberry said over the weekend that management is eyeing for the disposal of “smaller” assets worth “hundreds of millions of dollars” while the company doubles down on products that are “more relevant” to its customers.
“We get a little bit smaller, a little bit less complex and we can focus on what we’re good at,” Shrewsberry told the Financial Times. “There are a handful of businesses in our mindset. They’re not at the scale of most of our businesses… not top-tier providers.”
He didn’t specify which divisions or businesses faced the chopping block. The bank has almost $2 trillion in assets, the third most in the U.S. behind JP Morgan Chase and Bank of America, and it’s a clear leader in several consumer lines of business.
It’s the largest retail mortgage lender in the country, and the bank also holds the top spot in used auto loans and student loans. In addition, it’s the top debit card issuer in terms of purchase and transaction value.
The bank declined any comment Monday, instead referring to remarks Chief Executive Timothy Sloan made in an earnings call last week.
“For those businesses that we don’t believe are as core to our platform, but [also] maybe they can grow better in the hands of others, we’ve decided to exit those,” Sloan said. “If something doesn’t fit, we’ll move on.”
Regulators fined the company $185 million last September after employees driven by onerous sales goals opened millions of unauthorized checking, saving and other accounts. In the wake of the scandal, Wells Fargo Chief Executive John Stumpf resigned and the company revised its incentive system.
Scott Siefers, an analyst with investment bank Sandler O’Neill, said that it’s no coincidence big changes are underway at the bank.
“Of course, a lot of this strategic review was born out of last year’s scandal, but the company also has a new CEO in Sloan,” Siefers said. “He’s taking a fresh look to make sure they’re effectively utilizing capital and finding ways to improve efficiency.”
The bank started in April shedding assets in earnest when it sold its crop insurance business for $700 million to Zurich American Insurance Co. Then in June, it announced the sale of its commercial insurance business to USI Insurance Services.
Last week, it announced the sale of its shareholder services unit to Britain’s Equiniti Group for $227 million.
Although the price tags are substantial, none of these units are part of Wells Fargo’s core business. Siefers said that although the bank will give every business a hard look, he doesn’t expect it to sell anything major.
“Wells Fargo is so vast that they have dozens upon dozens of discrete business lines, so some of the ancillary ones are getting a second look,” Siefers said.
The company is cutting costs as well. In January, it announced a plan to decrease expenses by $2 billion by 2018, and at the Wells Fargo investor day in May, it announced plans to cut $2 billion more by the end of 2019.
The cuts involve closing and consolidating smaller branches, cutting outside consultants and centralizing operations — which could entail moving jobs offshore.
In its earnings report last week, the company reported its biggest quarterly jobs cut since 2013. Its employee count fell by roughly 2,200 to about 270,600 during the three-month period that ended June 30.
Wells Fargo earned $5.8 billion, or $1.07 per share, in the quarter, outperforming what was expected by analysts, according to FactSet. Contributing to that was a gain of 4 cents a share from the USI sale.
But the bank is still feeling the effects of its accounts scandal. New credit card account openings were up 10% since the first quarter but down 42% compared with last year’s second quarter.
Shares of Wells Fargo closed down 28 cents, or about half a percent, to $54.71 on Monday.