Charlie Scharf, the CEO of Wells Fargo, informed investors on Tuesday that he anticipates booking higher-than-expected severance costs in the fourth quarter, ranging from $750 million to slightly less than $1 billion.
“We are continuing to focus on efficiency with turnover dropping, unfortunately, we’re going to have to be more aggressive about our own internal actions,” Scharf said, adding that he thinks it would be the right step in the long term.
Less than fifty bankers from the bank’s corporate and investment bank were let go last month. This came after the San Francisco-based lender had previously issued a warning that it may reduce its workforce even more in an attempt to increase efficiency.
Since the third quarter of 2020, the bank has trimmed its workforce, which at the end of the third quarter of this year was 227,363.
It continues to function under an asset cap that keeps it from expanding until regulators determine that issues arising from the fake accounts scandal have been resolved. Nine open consent orders from banking regulators that demand more scrutiny of the bank’s operations are still in effect.
Speaking to investors at the Goldman Sachs U.S. Financial Services Conference, Scharf stated that getting the consent orders lifted was management’s top priority.
“We feel very good about the progress we have made,” Scharf added.
There has been some weakness in the commercial real estate portfolio of the fourth-biggest U.S. bank, especially with regard to the office loans.
“We expect to see losses (in the office portfolio) in Q4 which will continue into next year,” Scharf said.
In the third quarter, Wells Fargo allocated $359 million to cover possible credit losses on office real estate; this brings the total amount of allowances for the first nine months of 2023 to $2.6 billion.
Scharf stated that although interest rates are high and there are concerns about an impending recession, the economy is still strong and he is cautious about 2024.
According to Scharf, the bank’s credit card business may grow further because customers are still tenacious.
Both the size of its mortgage servicing portfolio and its origination of auto loans have decreased at Wells Fargo.
Financial health of American consumers remains strong, according to executives from the nation’s largest banks. However, spending has decreased recently, and more Americans are beginning to miss loan payments.
