Wells Fargo management expected to woo
shareholders with new cost cuts
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[May 11, 2017]
By Dan Freed
(Reuters) - Wall Street is waiting to find
out exactly how much more money Wells Fargo & Co <WFC.N> management
plans to save through cost cuts when top executives give six hours of
presentations at the bank's investor day on Thursday.
The third-largest U.S. bank is already working toward a $2 billion
annual expense-savings target, but when discussing first-quarter results
last month, Chief Financial Officer John Shrewsberry told analysts to
expect "a bigger number" to be unveiled at the upcoming event.
Analysts vary widely in their estimates of how much more management will
be able, or willing, to trim from its cost structure, which is
Wells Fargo should be able to achieve another $3 billion in savings,
Barclays analyst Jason Goldberg wrote in a report last week. Bernstein
analyst John McDonald was more cautious, saying $1 billion of savings
over the next two to three years would be "challenging, but potentially
While other big U.S. banks have carried out massive layoffs and
cost-cutting over the past several years, Wells Fargo has been a
relative spendthrift. Until recently, it had been trying to grow
aggressively in various businesses, particularly investment banking, and
management had defended its cost structure as necessity to maintain or
expand market share.
As of Wednesday's market close, Wells Fargo shares are up 6 percent over
the past six months, lagging gains of 14.1 percent for JPMorgan Chase &
Co <JPM.N> and 28.7 percent for Bank of America Corp <BAC.N>.
In response to analyst questions, executives repeatedly said Wells Fargo
would keep its costs at the high end of a range of 55 to 59 percent of
But starting in September, the bank became enmeshed in a months-long
scandal after revelations that thousands of employees had opened as many
as 2.1 million sham accounts in customers' names without permission.
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A Wells Fargo logo is seen in New York City, U.S. January 10, 2017.
Warren Buffett, the chairman of Berkshire Hathaway Inc <BRKa.N>, on
Saturday criticized Wells for failing to stop employees from signing
up customers for bogus accounts even after learning it was
happening. Berkshire is Wells' largest shareholder with a 10-percent
Costs related to the scandal, on issues such as litigation,
compliance, and consultants, have only drawn more attention to Wells
In the first quarter, Wells Fargo's costs ate up 63 percent of
revenues, something Chief Executive Tim Sloan described as "just not
Management is now trying to bolster shareholder support, by not only
reforming sales practices at the retail bank, but improving
financial performance. Analysts said they expect that effort to be
on full display on Thursday, when top executives plan to give
roughly six hours of presentations at the Four Seasons hotel in San
"The day should represent a good opportunity for management to
refocus market attention to (Wells Fargo's) ongoing fundamentals
rather than the remaining noise of last year's account opening
scandal," said Sandler O'Neill analyst Scott Siefers.
(Reporting by Dan Freed in New York; Editing by Lauren Tara LaCapra
and Nick Zieminski)
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