Signs are stacking up that Wells Fargo WFC 0.60% & Co. is shrinking, even as rivals are in growth mode.
The bank said Thursday that its head count would decline by 5% to 10% over the next three years, reflecting some natural attrition, and what it called “displacements,” or layoffs. That would mean approximately 13,000 to 26,000 people shaved from Wells Fargo’s payroll.
The bank cited many factors, such as continued migration toward digital banking and a general commitment to efficiency. However, it is hard to escape the conclusion that the move also reflects lackluster business prospects for the bank as the fallout continues from its multiple high-profile governance failures.
Wells Fargo announced plans to cut up to 10% of its workforce. Photo: Spencer Platt/Getty Images
Just last week, Wells Fargo’s chief financial officer said business loans were likely to decline from their second-quarter level and acknowledged for the first time that reputational issues could be hurting the bank’s commercial lending operations.
Wells Fargo’s revenue per employee last year was around average compared with peer banks, according to S&P Capital IQ. At $327,000 per employee, it was below that of Bank of America Corp. and JPMorgan Chase & Co., which have lucrative investment banking operations, but above Citigroup Inc. and large regional lenders PNC Financial Services Group Inc. and U.S. Bancorp. This suggests the move to cut head count isn’t driven by fat that needs trimming. Rather it seems driven by a dull business outlook over the next few years and the imperative to offset high expenses from reorganizing the business following the account sales fiasco of 2016.
Wells Fargo increasingly seems to be on a different cycle from its big bank peers, who have been pivoting to growth after years of painful restructuring. There hasn’t been a major layoff announcement by a top U.S. bank since 2016, when Bank of America announced 9,000 cuts, according to job placement firm Challenger, Gray & Christmas.
The timing of this Wells Fargo announcement, combined with last week’s warning on loans, is a bad signal for third-quarter earnings. The stock is modestly lower, even as rivals have gained. This suggests investors expect an underwhelming, but not sharply weaker quarter. The bigger concern beyond the quarter is the lack of a clear path for Wells Fargo to resume growth.
Write to Aaron Back at [email protected]