Wells Fargo doubling its cost-cutting target

• Wells Fargo & Co. doubled its cost- cutting target on Thursday after seeing expenses soar in the aftermath of a sales scandal that the third- largest U. S. bank is still trying to recover from.

But the move, detailed at Wells Fargo’s investor day, failed to impress Wall Street, because management also indicated that revenue growth is suffering from the scandal, which involved employees creating as many as 2.1 million unauthorized accounts in customers’ names to hit sales targets.

The bank’s stock closed Thursday down 1.8 per cent at US$53.74.

Wells Fargo plans to reduce expenses by another US$2 billion through the end of 2019, on top of a US$2-billion cost-cutting target previously announced.

The cuts come after repeated questions about why Wells Fargo was not doing more to reduce costs, which have been high by some measures when compared to U.S. banking rivals.

But the scandal has only increased costs, as the bank has tried to fix practices internally and respond to regulatory inquiries and public backlash.

During the investor day event, executives said they understood investor concerns and would take action.

Chief executive Tim Sloan used the word “unacceptable” at least twice, in reference to prior sales practices and expense levels. Management had been trying to keep expenses in a range of 55 per cent to 59 per cent of revenue, but in the first quarter that ratio soared to 62.7 per cent.

“Operating at this level is completely unacceptable,” Sloan said.

As chief financial officer John Shrewsberry began his presentation, he joked: “Raise your hand if you’re interested in hearing about expenses at Wells Fargo.”

He said the bank plans to get back into its targeted ratio in the coming years.

The sales abuses in Wells Fargo’s branch banking operation led to a US$ 190- million regulatory settlement, launches of other government probes, the firing of several bankers, the departure of CEO John Stumpf and shareholders offering scant support for most directors at the bank’s annual meeting last month.