Wells Fargo & Co. is planning severe job cuts that could ultimately impact up to 20% to 25% of its workforce, or around 50,000 to 66,000 jobs, according to sources.
Amid rumblings of mass layoffs during a pandemic, the company said Aug. 31 it has not set targets for a total number of job cuts, though a multiyear cost-cutting effort is already underway at the firm. According to a recruitment and compensation expert, the news of job cuts, combined with the bank's prolonged battle with reputational issues and scandals, will likely make it harder for the firm's asset management unit to recruit talent and attract new clients.
San Francisco-based Wells Fargo began notifying employees in August in a first round of layoffs, and will be "winding down their roles in October," with additional rounds of cuts to continue through 2021, an anonymous source with knowledge on the matter told Pensions & Investments. Anywhere from 25,000 to 50,000 jobs are being targeted in the workforce reduction plans, and pending cuts are expected to impact all areas of the business including Wells Fargo Asset Management, the source said.
Another source who spoke under the condition of anonymity said Wells Fargo was targeting a workforce reduction of up to 25% of staff, or around 66,000 employees.
The source said the firm might achieve a significant proportion of the reductions by cutting and downsizing branches and leaning more heavily on telephone and web services. The expectation in the asset management unit, however, is that cuts will not be as deep as in some business lines.
Wells Fargo Asset Management "will continue its push to automate back office, freeze hiring, including replacements, with exceptions for critical roles, but will not be cut back hard," the source said.
Wells Fargo had around 266,000 employees total as of June 30, including about 1,450 employees at Wells Fargo Asset Management, the firm's website shows. At the time, Wells Fargo Asset Management had $578 billion in assets under management. Wells Fargo reported $17.8 billion in revenue in the second quarter, including $3.7 billion in revenue from its wealth and investment management business line.
When questioned about the depth of cuts at the firm, a Wells Fargo spokeswoman said on Aug. 31 that the company has "not set targets for a total number of job displacements."
That same day, Wells Fargo Asset Management provided a statement that said: "Each business line and function is conducting comprehensive analyses to identify duplication, low-value activity, manual processes, and other opportunities to improve how we operate. We can expect impacts, including job reductions, in most geographies across our footprint and nearly all of our business lines and functions."
On Aug. 18, Wells Fargo first confirmed with Pensions & Investments that it was at the beginning of a multiyear cost-cutting effort that would include workforce reductions.
This followed Wells Fargo CEO and President Charles W. Scharf's comments in a July earnings call about the need for expense cuts at the bank.
Mr. Scharf told analysts in the July 14 earnings call that, for the company "to bring our level of efficiency close to our peers, the math would tell you we need to eliminate over $10 billion of expenses."
If Wells Fargo's layoffs reach the high end of sources' estimates, the impact could match or exceed the significant overhaul announced at Deutsche Bank in July 2019, which entailed the firm cutting its workforce by a fifth, or 18,000 jobs. DWS Group GmbH & Co. KGaA, the money management unit of Deutsche Bank, was spared in the restructuring plan, however, P&I reported at the time.
Alan Johnson, managing director of New York-based compensation consultant Johnson Associates Inc., said that Wells Fargo's announced cost-cutting plan will hurt the firm from a recruitment perspective, including in asset management.
"It's not just the cost cutting, but years of instability at the bank," since the 2016 sales scandal surfaced, he said. "It's just one negative story after another. … (There's) just a general malaise from bad news and instability," Mr. Johnson added, noting that it could negatively impact Wells' ability to attract new asset management clients.
In October 2019, Mr. Scharf became the third CEO in three years to take the reins at the troubled firm.
An asset management employee at Wells Fargo, who spoke to P&I under the condition of anonymity, said that cost cutting may be "the right thing to do," particularly in areas like fundamental equity research, which will not require as much staff in the future.
"I think the company is going in the right direction," the source said of the expense-cutting plan. The source was not aware of the extent of the firmwide layoffs.
"You can see there's no need to keep so many people to do the old fundamental (equity) research," particularly as the asset management unit has made strategic investments into big data and computer-driven analysis, the source said.
On Thursday, Wells Fargo Asset Management said in a statement that the unit “has no plans to make cuts in its equity research functions.”
Two institutional investor clients of Wells Fargo Asset Management have said that their mandates are not on watch as a result of Wells Fargo's announced cost-cutting plans.
Ashbel C. Williams, executive director and CIO of the Florida State Board of Administration, Tallahassee, which oversees a total of $216.9 billion, said that the board had not taken any action regarding its mandate with Wells Capital Management Inc., a Wells Fargo Asset Management boutique.
Wells Capital manages around $991 million in an emerging markets equity mandate for the SBA, Mr. Williams confirmed.
"Obviously, Wells Fargo broadly has had issues that are very well known. I think we are generally aware of what's what," Mr. Williams said, noting that issues have been "related to governance," which has impacted revenues and resulted in cost cutting.
He noted the board has a good relationship with Wells Capital Management.
In February 2018, the Federal Reserve placed a growth restriction on Wells Fargo in light of the retail banking cross-selling scandal, prohibiting the bank from growing beyond $1.95 trillion in assets. In April, however, as result of the coronavirus, the Fed announced it would temporarily lift the asset cap so that Wells Fargo could provide additional support to small businesses through the Paycheck Protection Program.
Wells has remained in the crosshairs of financial regulators, however. On Sept. 2, the Financial Industry Regulatory Authority announced that Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC agreed to pay more than $1.4 million in restitution plus interest to approximately 100 customers and fines totaling $675,000 for failing to supervise recommendations that customers switch from variable annuities to investment company products, a news release said.
The $20.1 billion Kentucky Teachers' Retirement System, Frankfort, has around $500 million in core fixed-income assets managed by Galliard Capital Management Inc., another Wells Fargo Asset Management boutique.
Beau Barnes, general counsel and deputy executive secretary of operations for the fund, said the pension fund is aware of the cost-cutting program and layoffs at Wells Fargo, but that Galliard has had "solid, consistent performance" as a manager and is not on a watchlist.
"From what we're aware of, there have not been any announcements about specific changes to staff at Galliard," Mr. Barnes said, noting that the pension fund will "wait and see what happens," and is "constantly monitoring our managers."
Mr. Barnes added that Galliard is obligated by contract to notify Kentucky Teachers of any material changes, such as senior staff leaving, that would affect the pension fund's account.