By Dan Freed
(Reuters) - Wells Fargo & Co (N:WFC) doubled its cost-cutting target after seeing expenses soar in the aftermath of a sales scandal that the third-largest U.S. bank is still trying to recover from.
Wells Fargo published a presentation on Thursday related to an investor event that showed another $2 billion in expense reductions on top of $2 billion management had earlier outlined.
The latest cuts come after years of questions from analysts and investors about why Wells Fargo was not doing more to reduce costs, which have been high compared to U.S. banking rivals.
The months-long sales scandal, involving the creation of as many as 2.1 million accounts in customers' names without their permission, has only increased costs as the bank has tried to fix practices internally and respond to regulatory inquiries and public backlash.
During the event, executives stated clearly that 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. Bank management had previously said they wanted to keep expenses in a range of 55 percent to 59 percent of revenue, but in the first quarter that ratio soared to 62.7 percent.
"Operating at this level is completely unacceptable," Sloan said.
As Chief Financial Officer John Shrewsberry began his presentation, he joked to the crowd: "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.
Nearly all of the executives speaking on Thursday, including Sloan, are in new positions they have entered after the scandal erupted in September. Wells Fargo's investor day is typically a biannual event, but management held it a year early to give investors more information about how they are running the bank, Sloan said.
A big chunk of its new cost cuts will come from closing branches, something Wells Fargo has been slower to do than big banks like Bank of America Corp (N:BAC) or Citigroup Inc (N:C). It is an easy way to quickly cut expenses, though some banks, including JPMorgan Chase & Co (N:JPM), have been careful about branch closures because they can also hurt revenue.
Wells Fargo plans to close 450 branches in 2017 and 2018, roughly 10 percent more than its previous target.
The additional cost cuts and apologies issued by management early on Thursday failed to support the bank's stock price.
Its new $2 billion figure fell roughly in the middle of Wall Street expectations, and analysts told Reuters that the bank's other guidance for growth was less optimistic than some had expected.
For instance, a hypothetical scenario of 1 percent revenue growth in 2018 the bank detailed in a slide deck was disappointing, as was its net interest income outlook for this year, they said. Shrewsberry emphasized that the hypotheticals were not firm projections, and simply meant to give investors an idea of what could potentially happen.
Wells Fargo shares were down 1.6 percent at $53.82 in morning trading.
Its shares had risen just 6 percent over the past six months as of Wednesday's close, lagging gains of 14.1 percent for JPMorgan Chase & Co (N:JPM) and 28.7 percent for Bank of America Corp (N:BAC).