Wells Fargo plans to close about 900 branches as part of efforts to cut costs in the wake of its mis-selling scandal even though the bank’s profits received an immediate $3.4bn boost from the US corporate tax cut.
Executives at the San Francisco-based group, which operates about 5,860 branches across the country, said on Friday they would make the closures to the retail network by the end of 2020 — including at least 250 this year.
The disclosure came even though Wells is set to be among the biggest beneficiaries of the tax cuts among the country’s largest banks and last month said it would boost the staff minimum wage and hand 250,000 employees restricted stock awards.
The tax reforms were signed into law only three weeks ago, yet Wells on Friday recorded a multibillion-dollar reduction in the value of the “deferred tax liability” — taxes due to be paid in future — on its balance sheet.
However, investors looked past the accounting gain to focus on the fortunes of the underlying business, which is still struggling to move on from the fake accounts scandal that erupted about 18 months ago.
The bank on Friday took a $3.25bn pre-tax hit to earnings from litigation accruals for mortgage-related regulatory investigations, sales practices, and “other consumer-related matters”.
“They’re not out of the woods — regulatory and legal issues are still not resolved,” said Kyle Sanders, analyst at Edward Jones, who described the earnings as “lacklustre”.The charge included a provision for the settlement of pre-crisis mortgage abuse allegations, as well as more recent misdemeanours, said John Shrewsberry, chief financial officer. More detail would be provided in a subsequent securities filing.
Tim Sloan, chief executive officer, told investors: “I can’t provide you with a guarantee or absolute assurance that we won’t be making additional changes in the future to anything that we might find. But . . . we’ve made a lot of progress.”
As part of efforts to recover from the bogus account scandal that erupted almost 18 months ago, executives have pledged to cut $4bn a year in costs by the end of 2019.
Unlike rivals, Wells long resisted embarking on an aggressive branch closure programme. But it has been making reductions under Mr Sloan, who was appointed chief executive last year in the wake of the scandal.
“Branches play an important part in serving our customers and we will have as many branches as our customers want for as long as they want them,” Mr Shrewsberry said on Friday.
Wells said it planned to reinvest the savings in part by strengthening regulatory compliance and risk management. An investment programme would focus on areas including anti-money laundering and sales practices.
The earnings meanwhile showed that rising interest rates have yet to give a big boost to Wells. In spite of the Federal Reserve’s rises, Wells’ net interest margin, a measure of lending profitability, came in at 2.84 per cent in the fourth quarter — down from 2.87 per cent a year ago.
Other trends were more positive. Net charge-offs for bad debts among borrowers remained near historic lows at 0.31 per cent, down from 0.37 per cent a year ago.
Loan balances by the end of the year came to $957bn, up almost $5bn during the quarter, as expansion in lending to companies and credit cards offset declines in commercial property and car loans.
Overall, annual revenues were little changed from a year ago at $88.4bn, and net income was also broadly flat at $22.2bn. The figures were also flattered by a $848m gain on the sale of an insurance business.
Shares in Wells, which underperformed the S&P 500 financial index by 8 per cent last year, were down 0.6 per cent by afternoon trading in New York.
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