Wells Fargo (WFC), a US financial services company and third largest bank in the country announced that there are more job cuts ahead as a part of its massive $10 billion expense reduction efforts.
The news follows a wave of layoffs at Wells Fargo over the past couple of years, which saw the company’s headcount shrink from 268,500 in 2020 to 233,800 in the second quarter of 2023 (a -12.92% decrease).
Key takeaways:
- The CEO of Wells Fargo, Charlie Scharf, has said that the company is looking for additional opportunities to reduce expenses
- Further headcount reductions and branch closings are very likely as the bank continues to execute its 3-year, $10 billion expense reduction plan
- Since 2020, Wells Fargo has reduced its workforce by 35,000, or about -13%
- This year, the firm’s employee count has shrunk by -4.7%, which is in line with other major U.S. banks
- The bank beat the market’s expectations in Q3 2023, posting an EPS of $1.48 (estimated EPS was $1.24)
Wells Fargo CEO: “We still have additional opportunities to reduce headcount”
During the Q3 2023 earnings call, the bank’s CEO, Charlie Scharf, said that the company would be looking to further reduce headcount in an effort to lower the expense of the company. “When we sit around as a management team, we feel great about the progress and there’s no clearer way to see that than in the headcount numbers, which ultimately drive the expense of the company,” Scharf explained.
“We believe we still have additional opportunities to reduce headcount and attrition has remained low, which will likely result in additional severance expense for actions in 2024.” – Wells Fargo CMO, Mike Santomassimo
In addition to the headcount reduction, the bank has also been aggressively closing its branches. “This company is not efficient — like, period. End of story,” Scharf said. “Even with all of the reductions that we’ve made, it’s not surprising because as you peel the onion back, other things present themselves.”
It is not clear how severe the upcoming job cuts at Wells Fargo are going to be. However, it is worth noting that the trend of reducing the workforce has been present in the banking sector as a whole. In fact, the only major U.S. bank that hasn’t reduced its employee count between Q3 2022 and Q3 2023 is JPMorgan (JPM), which actually increased its workforce by 5.1% in the time period.
Employee counts at major U.S. banks. Image source: CNBC
It is worth noting that the headcount reduction has had a positive impact on Wells Fargo’s bottom line – the company reported $1.48 earnings per share (EPS) in Q3 2023, beating forecasts by more than 19%.
Why is Wells Fargo shrinking its headcount?
Between December 2021 and December 2022, Wells Fargo saw a huge dip in earnings generated by its home lending business. According to the Q4 2022 earnings report, the bank’s mortgage business earnings dropped from $1.84 billion to $786 million, a year-over-year (YoY) drop of more than -57%. Meanwhile, net income decreased from $5.75 billion to $2.86 billion in the same period.
Poor performance of the mortgage division in the years following the Covid-19 housing boom saw Wells Fargo shrink its headcount by roughly 38,000 employees, primarily in its home lending business. The poor performance has been largely driven by low home sales.
The number of Wells Fargo employees peaked at over 272,200 in 2010. It decreased by -13% to 233,800 in Q3 2023. Source: Wells Fargo
The primary reason for the reduced number of people wanting to buy a home by taking out a loan in the past year or so is the rapidly increasing mortgage rate fueled by the Federal Reserve’s interest rate hikes.
Whereas the rate for the 30-year fixed mortgage reached an all-time low of 2.65% in December 2020, the rate had spiked to 7.63% by October 2023, which has had a chilling effect on the housing market.
The result of the more expensive credit has been a decrease in home sales and a drop in home prices. In fact, Wells Fargo predicts that home prices will continue to fall in the coming months and record an overall drop of 5.5% in the year. However, the bank noted that there could be significant fluctuations in the final figure due to the unpredictability of the recession in 2023.
The bottom line: Wells Fargo layoffs follow the broader industry trend
Throughout 2022 and 2023, we’ve been witnessing a wave of white-collar layoffs, with companies such as Meta, Google, Twitter, and Microsoft making severe job cuts. In total, the big tech companies terminated 150,000 workers in 2022. Some predict this number could climb even higher this year, with other industry sectors more prominently joining the fold.
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Source: https://coincodex.com/article/23773/wells-fargo-layoffs/