(Reuters) – Wells Fargo & Co management unveiled $2 billion in new cost cuts ahead of presentations at the bank’s investor day on Thursday as the scandal-hit lender hopes to appeal to skeptical investors on the heels of disappointing first-quarter earnings.
The third-largest U.S. bank said the savings will be reflected in 2019 earnings and come on top of a previously announced $2 billion target for 2018. The 2018 savings will be reinvested in the business.
The new $2 billion figure fell roughly in the middle of analyst expectations.
The bank should be able to achieve another $3 billion in savings, Barclays analyst Jason Goldberg wrote in a report last week. Bernstein analyst John McDonald was more cautious, saying $1 billion of savings over the next two to three years would be “challenging, but potentially achievable.”
While other big U.S. banks have carried out massive layoffs and cost-cutting in recent years, Wells Fargo had until recently been trying to grow aggressively in various businesses, particularly investment banking, and management had defended its cost structure as a necessity to maintain or expand market share.
Wells Fargo shares rose just 6 percent over the past six months as of Wednesday’s close, lagging gains of 14.1 percent for JPMorgan Chase & Co and 28.7 percent for Bank of America Corp. Shares fell 2.2 percent in early trading on Thursday, compared to declines of less than one percent for JPMorgan and Bank of America.
Executives had repeatedly told analysts Wells Fargo would keep its costs at the high end of a range of 55 percent to 59 percent of revenue.
But starting in September, the bank became enmeshed in a scandal following revelations that thousands of employees had opened as many as 2.1 million accounts in customers’ names without authorization in order to hit sales targets.
Warren Buffett, the chairman of Berkshire Hathaway Inc , on Saturday criticized Wells for failing to stop employees from signing up customers for the accounts even after learning it was happening. Berkshire is Wells’ largest shareholder with a 10 percent stake.
Costs related to the scandal on items including litigation, compliance and consultants, have drawn more attention to Wells Fargo’s expenses.
Wells Fargo’s costs ate up 63 percent of revenues in the first quarter, something Chief Executive Tim Sloan described as “just not acceptable.” Thursday’s slide presentation said costs would likely be between 60 percent and 61 percent of revenues in 2018, and that the bank is still targeting a 55 percent to 59 percent range.
Management is trying to bolster shareholder support by reforming sales practices at the retail bank and improving financial performance. Analysts said they expected that effort to be on full display on Thursday, when top executives plan to give roughly six hours of presentations at the Four Seasons hotel in San Francisco.
“The day should represent a good opportunity for management to refocus market attention to (Wells Fargo’s) ongoing fundamentals rather than the remaining noise of last year’s account opening scandal,” said Sandler O’Neill analyst Scott Siefers. (Reporting by Dan Freed in New York; Editing by Lauren Tara LaCapra and Meredith Mazzilli)
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