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Wells Fargo is setting aside as much as $1bn for “unanticipated” severance costs in the fourth quarter of this year, as the US bank seeks to lower expenses and with fewer employees leaving voluntarily.
Chief executive Charlie Scharf, who announced the job reduction expense on Tuesday morning at an industry conference, did not say how many positions would be eliminated and when.
“We have seen turnover come down,” Scharf said. “And with turnover dropping, unfortunately, we’re going to have to be more aggressive about our own internal actions.”
Scharf said that while he expected a soft landing for the economy, the San Francisco-based bank was being cautious in planning for the next year.
“When we talk about our own efficiency, we say we are not even close to where we should be,” he said. “We’re focused on just our processes and how we can eliminate duplication and simplify the company.”
A person familiar with the bank’s plans said some of the job cuts the bank was setting aside money for now would not happen until next year.
Wells Fargo has been gradually lowering its headcount this year — eliminating 12,000 positions in the first nine months of 2023 — but the severance cost announcement probably indicates a further rise in job reductions. The bank spent $186mn on severance in the third quarter, eliminating 7,000 positions. That suggests the newly announced severance expense could lead to tens of thousands of additional lay-offs.
“We are down significantly in terms of headcount,” Scharf said. “We’re down to 230,000 or less [employees], as we sit here today, without one big massive lay-off. It’s been just focused area by area on where we can get more efficient.”
Despite those cuts, the bank, like its peers, has added tens of thousands of jobs in the past few years as part of an effort to comply with tighter regulation. Many of those hires have been part of Wells Fargo’s efforts to comply with the Federal Reserve, which in 2018 imposed a cap on the size of the bank’s balance sheet following the lender’s fake accounts scandal.
Scharf, who took over the top job at the bank in 2019, has been focused on getting that cap, which has been a significant drag on Wells Fargo’s operations, removed. However, Scharf on Tuesday lowered expectations that would happen any time before 2025.
“When we look at these consent orders, appropriately, everyone is focused on what the end date is, when these things get lifted, especially the Fed consent order that has the asset cap,” Scharf said, referring to the bank’s spending on regulatory efforts. “That’s not an opportunity as we look into 2024 for [cost] reduction.”
Wells Fargo shares closed 1.4 per cent lower in New York on Tuesday, as the S&P 500 dropped 0.1 per cent.
