Wells Fargo (Stock Quote: WFC) announced it will eliminate 3,800 jobs and close 638 locations in its financial division due to restructuring.
The company is eliminating Wells Fargo Financial, a division that sold consumer loans and mortgages to borrowers with credit issues. Wells Fargo said that its 2008 merger with Wachovia eliminated the need for a separate network of financial offices. Less than 2% of the company’s real estate loans originated in Wells Fargo Financial locations during the first quarter of 2010. Prospective borrowers still have access to 6,600 Wells Fargo and Wachovia community banks and 2,200 Wells Fargo Home Mortgage locations.
“Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years,” David Kvamme, president of Wells Fargo Financial, said in a press release. “But the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States.”
Additionally, Wells Fargo plans to stop making non-prime home loans. Kvamme told BusinessWeek that only 3% of the loans made through Wells Fargo Financial in the first quarter were non-prime. The company does plan to honor existing Wells Fargo Financial consumer loans without interruption.
In total, the soon-to-be obsolete division employed 14,000 people. Approximately 2,800 positions will be eliminated in the next 60 days. An additional 1,000 positions will be cut during the next 12 months. Wells Fargo will relocate the remaining members to other divisions of its business.
Charges associated with the restructuring will total approximately $185 million dollars. As a result, the company will institute a $0.02 per share restructuring charge in the second quarter of 2010. However, Wells Fargo said subsequent cost savings should offset these charges over the next year and a half.