Wells Fargo (WFC) is doubling planned cost cuts to $4 billion by the end of 2019 as CEO Tim Sloan works to restore the banking giant's fortunes after a fake-accounts scandal that spurred his predecessor's departure and prompted a backlash from investors and customers.
The San Francisco-based bank, which in January detailed $2 billion in expense reductions through the end of 2018, said Thursday that it would trim an additional $2 billion by the end of the following year amid an expanding shift into digital services.
The savings will be achieved through consolidating similar operations, using technology to automate tasks previously handled manually and trimming its branch footprint as more customers use mobile banking tools. Wells Fargo plans to close about 450 local offices through 2018, saving about $170 million a year.
"We've learned a lot because of what happened in the last few months," Sloan said during an investor summit. "We're making many changes, some driven by what we've been through, but others reflecting changes in the industry and consumer preferences."
Wells Fargo has clawed back millions in executive pay since the scandal, eliminated aggressive sales goals that were blamed for pushing employees to set up unauthorized deposit and credit card accounts and refunded money to customers, but Sloan acknowledged it has more work to do.
Sales in the community banking division, which is Wells Fargo's largest unit and the epicenter of the bogus account issues, dropped 4.1% to $12.1 billion in the three months through March, the bank said in April.
Credit card applications and new checking accounts during the first quarter rebounded from lows in the immediate aftermath of the bank's fall settlement with regulators but were still considerably less than a year earlier, according to Thursday's presentation.
The company conceded in September that employees trying to sell as many as eight different products to each customer household had opened as many as 2 million unauthorized accounts.
The bank admitted it had fired as many as 5,300 people for the practice over a five-year period, and agreed to a $185 million settlement with regulators; former chairman and CEO John Stumpf abruptly retired soon afterward, following contentious questioning in two Congressional hearings. The bank is still facing criminal probes and has lost several lucrative deals with government bond-issuers.
The unauthorized accounts failed to raise sufficient red flags over a span of several years partly because of a decentralized corporate structure in which division chiefs were encouraged to run their department "like they own it," according to a report compiled by law firm Shearman & Sterling for the board's independent directors.
While the bank made several mistakes, according to billionaire CEO Warren Buffett, whose Berkshire Hathaway (BRK.A) is Wells Fargo's largest shareholder, one was worse than all the others: failure to act immediately when the problem was uncovered.
"That moment, that's the key to everything, because the CEO has to act," he said at Berkshire's annual meeting in Omaha, Neb., last weekend. "It was a huge, huge, huge error if they were getting -- and I'm sure they were getting -- some communications and they ignored them or they just sent them back down to somebody down below."
Wells Fargo dropped 1.8% to $53.74 in New York trading on Thursday, paring gains over the past 12 months to 9.5%.
Account openings "took an understandable dip" after the settlement was announced, Mary Mack, who became community banking chief after the scandal prompted Carrie Tolstedt's ouster, told investors and analysts on Thursday. Now, she said, "we've seen those trends stabilize, and I fully expect we'll see them continue to improve."
Despite closing some of its local offices, Wells Fargo still has the biggest branch network in the country, she said, handling 51 million transactions a month at teller windows and another 75 million at ATMs.
If customer behavior changes, the bank can adapt quickly since 80% of the its real estate is either owned or carries a lease with less than five years before renewal, Mack added.
"We'll have as many branches as our customers need and want, no longer than they need and want them," she said.
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Editors' pick: Originally published May 11.