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World news – Wells Fargo’s $ 8 billion question: how to cut costs without pissing off regulators

Many companies are cutting costs in order to weather the pandemic recession. Few try and spend billions of dollars at the same time to keep their regulators happy.

These are the tasks we face

Wells Fargo

WFC 5.20%

Managing Director of & Co.

Charles Sharp,

Who is trying to cut at least $ 8 billion from the San Francisco bank’s annual budget? The bank’s spending last year totaled $ 57.63 billion.

Wells Fargo is also bombarding money to reshape the vast systems of risk and control that regulators have claimed to be insufficient to fight the fake account scandal that got them in the hot water more than four years ago. Wells continues to be subject to 10 government penalties known as consent decisions. The toughest of the Federal Reserve has capped the bank’s growth for three years.

How Wells Fargo is fixing its back-end systems – and whether this clashes with other priorities – could also provide clues to competitors. Wells got into the pandemic worse financially than most of the big banks, but others also need to modernize their controls as they weather the recession.

Citigroup Inc.

was fined $ 400 million last year for own inspections. The bank has hired key people and made significant investments.

JPMorgan Chase

& Co. paid $ 250 million last year for deficiencies in internal controls that have been fixed.

Mr. Scharf also has to take a different path than his predecessors in Wells. They too tried to cut costs and rethink the bank under regulatory requirements. Years later, these tasks remain largely unsolved.

Mr Scharf said the bank would focus on the US market again and double up on its consumer and commercial operations. Cost reductions will come from most corners of the bank, including branch closings, lending automation, office consolidation, and downsizing.

But regulators play a big role in decision-making. Last fall,

Amanda Norton,

Wells Fargo’s chief risk officer planned to cut staff in her group along with the other departments of the bank. But during talks with the bank’s regulators last fall, supervisors asked if it could do this while it was still in compliance with regulatory obligations, according to people familiar with the exchange. The questions caused Ms. Norton and Mr. Scharf to reverse course and put the group’s layoffs on hold, people said.

What does Wells Fargo need to go beyond the fake accounts scandal? Join the conversation below.

Wells Fargo executives say their number one priority is improving the bank’s relationship with its regulators. « That has priority over everything » said

Mike Santomassimo,

the bank’s CFO on a call with reporters on Jan. 15. “We’ll continue to spend everything we can to make sure we get this right.”

Mr Scharf said Wells Fargo is less efficient than its peers and hopes to save $ 3.7 billion in 2021 to achieve. However, after investing in risk and control measures and other areas, only $ 1.5 billion will flow into profit this year, Bank said in January.

A group formed last year is reviewing cost-cutting efforts to ensure that they don’t hinder regulatory obligations, the Wall Street Journal reported last year. The committee, led by Ms. Norton, is reviewing the documentation for decisions like layoffs and testing them under pressure, said a person familiar with the matter. It has the ultimate veto power over cost-cutting initiatives previously left to individual executives.

Another new group is reviewing new products and policy decisions with a focus on their impact on customers.

« The risk, control and regulatory work remains a top priority and we are investing in these areas.  » said the chief operating officer

Scott Powell.

« We have taken security precautions to ensure that nothing, including any measures we take to improve our efficiency, interferes with these efforts. »

Since he became CEO in October 2019, Mr. Scharf has replaced most of his senior deputies . The bank has hired key risk leaders, including a new Chief Compliance Officer and a Chief Risk Officer for each of its business areas. The aim is to give each business area responsibility for the risk while maintaining central control. A new chief control executive shares responsibility with each company for overseeing disaster prevention safeguards.

Some at the bank say the differences this time around are cultural and that top management is realigning priorities so that focus staff on both regulatory issues and thrift. However, others say layoffs have hurt morale.

There have been signs of progress in the area of ​​regulation. In January, the Office of the Currency Auditor, one of the bank’s leading regulators, overturned a consent decree that included a failure of its anti-money laundering controls. The order came from 2015 before the fake account scandal came to light.

Most of the bank’s regulatory sanctions remain in place, however. The bank is not on the verge of completing the work required by regulators who, according to people familiar with the matter, are at times frustrated with the pace of progress.

Even so, Mr Scharf seems to be in better hands with regulators than his Predecessor. According to someone familiar with the matter, the Fed is not pushing the bank to complete its work. The OCC did not publicly reprimand Mr. Scharf like his predecessor Tim Sloan.

Regulators ???? Disillusionment was a factor in Mr. Sloan’s departure, the Journal reported. In March last year

Joseph Otting,

The former auditor said he was encouraged by Mr. Scharf’s leadership and focused on regulatory issues.

Ref: https://www.wsj.com