Banking Giant Wells Fargo May Be Preparing To Cut Tens Of Thousands Of Jobs

U.S. megabank Wells Fargo (WFC) may be planning to cut as many as tens of thousands of jobs later this year as it seeks to dramatically reduce costs amid a deepening covid-19 pandemic.

Bloomberg reported the bank is expected to report its first quarterly loss in more than ten years next week, and also cut its dividend following Federal Reserve-mandated stress tests.

Wells Fargo has suffered mounting loan loss provisions and rising expenses during the covid-19-related economic downturn.

Year-to-date through Thursday, Wells Fargo shares have plunged by 54%.

Wells Fargo currently has about 263,000 workers, making it the largest bank employer in the U.S.

While the bank is unlikely to spell out specific numbers of job losses during its earnings release, Chief Executive Officer Charlie Scharf has already warned that costs at the lender were already “way too high.” Scharf also confirmed the bank will lower its dividends amid a worsening outlook for the overall economy. Other major lenders, including Goldman Sachs (GS) and Morgan Stanley (MS), have pledged to continue their dividend payouts.

But some analysts warn that other big banks could follow Wells Fargo’s example with respect to cost cutting and lowered dividends.

“Not every financial institution came into this tumultuous time period on really sound footing, and those problems haven’t gone away because of the pandemic,” said Andy Challenger, senior vice president at staffing adviser Challenger, Gray & Christmas. “We very well may see a resumption of normal [cost] cutting as the pressure builds up within these organizations.”

Wells Fargo has also been hit hard by legal expenses and fines due to scandals that erupted in 2016, including the revelation that some employees opened new customer accounts –without their consent -- in order to pad their sales numbers.

In April of this year, the Federal Reserve slightly eased the asset cap it had imposed on Wells Fargo in 2018 as a penalty so it could participate in the government’s business lending program in 2020.

However, Wells Fargo has up till now kept job cuts to a minimum, while rival Bank of America (BAC) has shed 80,000 jobs over the past decade.

In a June press conference, Wells Fargo’s Chief Financial Officer John Shrewsberry warned: “There will come a time, and I assume at some point this year, when we get back to executing on programs that are in place, and some that are still under development, that are designed to get our total expense base, which for us means our total headcount, to as lean a state as we can responsibly operate.”

Zacks Investment Research warned earlier this week that investors should avoid buying Wells Fargo shares.

While Wells Fargo has recorded growing deposits and loan balances, displayed a strong capital position and remained focused on acquisitions in the past, Zacks noted, “the prevailing low-rate environment and volatile fee income have primarily challenged its profitability.”

Following the “unprecedented challenge” from the coronavirus pandemic, Zacks said, Wells Fargo has “suspended share buybacks which would continue for the third quarter as well. Now, the expectation of a cut in the third-quarter dividend… is likely to act as a blow to the bank on investor disappointment.”

Wells Fargo has also found it difficult to grow revenues.

“Amid the pandemic, loan and deposit growth rates, pricing spreads, the level of interest rates and the shape of the yield curve remain decisive factors for the top-line performance in the coming quarters,” Zacks stated. “Also, persistent rise in operating expenses over the last few quarters with some volatility has been another concern for Wells Fargo.”