Wells Fargo continues to face harsh realities as the third quarter draws to a close.
The coronavirus pandemic. Downsizing. Sales challenges. A reduced dividend. And an asset cap that costs the company's market share in San Francisco, forcing it to turn down the deal to keep its balance sheet in check.
Outgoing CFO John Shrewsbury told investors Monday that he doesn't know when the Federal Reserve will lift the cap, preventing the company from tipping over $ 1.95 trillion in net worth. The Fed issued the enforcement measure in 2018 after several scandals, including one in which employees opened fake customer accounts.
Shrewsbury said the cap has forced the company to move away from leveraged asset deals and limit its work with deposit-heavy institutional clients.
"There are definitely some companies that are big users of the balance sheet that we have had to trim down to keep an overall size below the cap," Shrewsberry said during a virtual Q&A session at the Barclays Global Financial Services 2020 conference.
Wells technically crossed the ceiling with $ 1.97 trillion in assets as of June 30, but his $ 10.6 billion loans under the Paycheck Protection program are excluded. The company has agreed to donate its PPP fees to nonprofits that help small businesses recover from the coronavirus pandemic.
The duration of the cap is not the only area of uncertainty. The fate of the dividend is also in question after the company cut it from 51 cents to 10 cents and an unknown number of job cuts this year as part of a plan to reduce annual spending by $ 10 billion, a move that is Later announced a loss of $ 2.4 billion was posted in the second quarter.
Shrewsberry didn't say how many positions will be cut.
The cuts are among the first waves of layoffs at major U.S. banks that imposed a moratorium on mass layoffs this spring as the pandemic turned the nation on its head.
"The way we do business changes, the way customers do business with us changes where we have overcapacity that change, and we need to address those things," Shrewsbury said. "Most of the costs … are people, so a lot of them will likely arise."
On the revenue side, Shrewsberry said net interest income – which is forecast to be $ 41 billion to $ 42 billion this year – is projected to be around $ 40.5 billion. Like the entire industry, Wells is "full of liquidity" and loan growth is less than expected, he said.
The company's loan-to-deposit ratio on June 30th was 66%. Citigroup also has a 66% ratio while Bank of America was 58%. JPMorgan Chase reported a 51% rate mid-year, with almost twice as many deposits as loans.
Shrewsberry, who was appointed CFO in 2014, announced his resignation in July. Mike Santomassimo, CFO at Bank of New York Mellon and former colleague of Charlie Scharf, CEO of Wells, will succeed Shrewsbury this fall.
Like his colleagues, Wells is preparing for a second round of Fed stress tests in the fall. All major banks will have to resubmit and update their capital plans to reflect the current economic situation.
"We haven't received any details yet – both what the scenario looks like and what the consequences or uses will be for the outcome," said Shrewsberry. "I think it's a useful exercise, but there's a little bit of uncertainty about what it means."