Wells Fargo cut 6,400 jobs last quarter while posting a $3 billion profit

Wells Fargo cut 6,400 jobs in the fourth quarter of 2020, according to its Friday earnings release, as CEO Charlie Scharf unveiled more details of his long-term plan to cut billions of dollars in expenses at the beleaguered bank.

The cuts were the biggest round of layoffs yet in the bank’s cost-cutting drive.

Net income was nearly $3 billion for the quarter consisting of the last three months of 2020, a figure that was up from the prior quarter but essentially flat compared to the same quarter in 2019.

Overall revenue at the San Francisco-based bank fell to $17.9 billion from $18.9 billion in the third quarter. Expenses fell, too, to $14.8 billion from $15.2 the quarter prior. Rock-bottom interest rates, as well as the pandemic recession, have weighed on the bank’s income, and executives don’t think business will fully recover until COVID-19 vaccines are more widely available.

Still, other banks lacking Wells Fargo’s issues are thriving. JPMorgan posted a record profit of $12 billion earlier Friday morning, and Wells Fargo CEO Charlie Scharf knows there’s plenty of room for improvement.

“With a more consistent broad-based recovery and as we continue to press forward with our agenda, we expect you will see that this franchise is capable of much more” Scharf said in a statement. Unlike JPMorgan, Wells did not release a large chunk of the billions of dollars it had set aside earlier in the COVID-19 pandemic to prepare for loan defaults.

Shares fell about 8% on Friday.

In the third quarter, Wells Fargo posted net income of $2 billion, a vast improvement over the pandemic-affected second quarter in which the bank lost money for the first time since the financial crisis.

The bank employs 27,000 people in Charlotte, which serves as an East Coast headquarters. It was not immediately clear how many job losses were in the Charlotte area.

Identifying cuts

Announcing the earnings, CEO Charlie Scharf also gave the first detailed look at how he plans to cut the bank’s expenses, which are bloated compared to other Wall Street firms.

Some $8 billion of the roughly $10 billion in cuts to annual spending have been identified, according to a presentation included with the bank’s earnings. And $3.7 billion in cuts will take place this year alone.

One to two management layers have already been slashed across the bank since May, an ongoing practice that will eventually make up about a third of the cuts.

Wells Fargo’s overall headcount fell by 6,400 in the fourth quarter to 268,531. The bank has now dropped $1.5 billion on restructuring spending in the last two quarters combined, mostly on severance.

So far, the jobs cuts have been concentrated in Wells Fargo’s sprawling retail operation and in commercial lending. There were 6,482 jobs cut in the retail side of the bank alone. That includes branch employees like tellers. The commercial banking wing saw headcount drop by 1,681, and wealth and investment management saw a drop of 714.

Investment banking was relatively unscathed, with its headcount only dropping 27 to 8,178. Those cuts across the bank were offset by Wells Fargo corporate adding over 2,500 jobs.

Wells Fargo will also reduce its real estate footprint and streamline lending across the bank, Scharf said. Roughly 250 branches will be closed this year, after 329 were shuttered in 2020, according to the presentation.

Selling off parts

As a part of the effort, Scharf has said that the bank would exit certain businesses that he didn’t feel were core to the business, which has already started.

In December, Wells Fargo sold its student loan portfolio to private equity firms. On Thursday, Reuters reported that the bank is close to a deal to sell its asset-management business to a group of private equity firms. The bank is also exploring selling off its corporate trust and railroad business.

Despite the wide-ranging drive to cut expenses, the bank is still grinding through changes regulators say need to be made to fix the bank’s numerous lingering issues, which range from fake accounts the bank created in customers names to its home and auto loans.

The extra staff needed to resolve those issues, which most other big banks worked through in the wake of the financial crisis, has made increasing efficiency more difficult for Scharf.

Progress on the regulatory front is underway, though.

Earlier this month, Wells Fargo was released from one of its consent orders with the Office of the Comptroller of the Currency, its top federal regulator, related to its anti-money laundering work. The cap on growth put in place by the Federal Reserve in 2018 for the bank’s myriad scandals is still in place.

Crosstown rival Bank of America reports its fourth quarter earnings on Tuesday.