May 11 Wall Street is waiting to find out
exactly how much more money Wells Fargo & Co management
plans to save through cost cuts when top executives give six
hours of presentations at the bank's investor day on Thursday.
The third-largest U.S. bank is already working toward a $2
billion annual expense-savings target, but when discussing
first-quarter results last month, Chief Financial Officer John
Shrewsberry told analysts to expect "a bigger number" to be
unveiled at the upcoming event.
Analysts vary widely in their estimates of how much more
management will be able, or willing, to trim from its cost
structure, which is relatively high.
Wells Fargo 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 over the past several years, Wells Fargo has
been a relative spendthrift. Until recently, it had been trying
to grow aggressively in various businesses, particularly
investment banking, and management had defended its cost
structure as necessity to maintain or expand market share.
As of Wednesday's market close, Wells Fargo shares are up 6
percent over the past six months, lagging gains of 14.1 percent
for JPMorgan Chase & Co and 28.7 percent for Bank of
In response to analyst questions, executives repeatedly said
Wells Fargo would keep its costs at the high end of a range of
55 to 59 percent of revenue.
But starting in September, the bank became enmeshed in a
months-long scandal after revelations that thousands of
employees had opened as many as 2.1 million sham accounts in
customers' names without permission.
Warren Buffett, the chairman of Berkshire Hathaway Inc
, on Saturday criticized Wells for failing to stop
employees from signing up customers for bogus accounts even
after learning it was happening. Berkshire is Wells' largest
shareholder with a 10-percent stake.
Costs related to the scandal, on issues such as litigation,
compliance, and consultants, have only drawn more attention to
Wells Fargo's expenses.
In the first quarter, Wells Fargo's costs ate up 63 percent
of revenues, something Chief Executive Tim Sloan described as
"just not acceptable."
Management is now trying to bolster shareholder support, by
not only reforming sales practices at the retail bank, but
improving financial performance. Analysts said they expect 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
(Reporting by Dan Freed in New York; Editing by Lauren Tara
LaCapra and Nick Zieminski)