Wells Fargo & Co., unable to maintain a longstanding profitability target after a scandal in the bank’s branches stained its brand, doubled a cost-cutting program and said it will plow some of the money into technology to replace an aggressive sales culture.
“Operating at this level is completely unacceptable,” Chief Executive Officer Tim Sloan said Thursday as executives began Investor Day presentations in San Francisco. “We are committed to improving our efficiency while we continue to invest in our business for the long term.”
The stock fell 1.3 percent as of 12:38 p.m. in New York, the most in the KBW Bank Index, after the firm blamed slowing loan growth for preventing it from hitting an efficiency target it has pursued for at least four years. It expanded a plan to save $2 billion annually by the end of next year, saying in a presentation that it now will cut twice as much by 2019.
Sloan is trying to counter damage to Wells Fargo’s business after authorities found employees may have opened more than 2 million unauthorized accounts to hit sales goals. On Thursday, executives acknowledged the turmoil is accelerating changes they need to make as the industry shifts, pushing them to rely more on technology to serve clients rather than a “sales organization” culture they long cultivated across thousands of storefronts.
“We’ll meet our customers where and how they want to interact with us, and not the other way around,” Sloan said.
The new efficiency-ratio goal for 2017 is 60 percent to 61 percent. Executives had long targeted a ratio of 55 percent to 59 percent. Sloan announced that aspiration as chief financial officer in May 2012, and executives stuck by it into this year, even as the scandal fueled legal costs and made it harder to lure clients.
In January, executives laid out their initial $2 billion cost-cutting plan that included closing hundreds of branches. But in the first quarter, the efficiency ratio swung further in the wrong direction, rising to 62.7 percent — the worst since at least the 2008 financial crisis. The figure compares noninterest expense to net income.
Executives still believe the old target is “appropriate” for its business model, but that it can’t be achieved in 2017, CFO John Shrewsberry said Thursday. Hypothetically, it can be reached next year if the bank increases revenue by about 1 percent and shaves expenses a little less than that amount, he said, noting that’s not a target.