Wells Fargo Cuts 3,800 Jobs, Closes Consumer-Finance Business
July 8 (Bloomberg) -- Bloomberg's Deirdre Bolton reports on the latest breaking news and top stories in today's Business Briefs. (Source: Bloomberg)
Wells Fargo & Co., the fourth-largest U.S. bank by assets, plans to eliminate 3,800 jobs, or about 1.4 percent of its total workforce, and close its consumer-finance branch network.
The lender will take a charge of $185 million, with $137 million, or 2 cents a share, in the second quarter, according to a statement yesterday from the San Francisco-based company. Wells Fargo said it will close 638 independent consumer-finance branches and stop making nonprime home loans.
“We have a store network, and that is closing,” David Kvamme, president of the unit, said in a phone interview yesterday. Also, “some of the businesses have been branded Wells Fargo Financial and we will rebrand them over time.”
Wells Fargo, which purchased Wachovia Corp. for $12.7 billion in 2008, is streamlining operations and trimming redundancies as it merges the two franchises. Credit-card, auto and home loans will continue to be made through 6,600 retail branches and 2,200 mortgage offices, the most of any U.S. bank, the company said.
“You will probably make more in efficiencies than you will give up in restructuring charges,” Christopher Mutascio, an analyst with Stifel Nicolaus & Co., said in a phone interview. “It’s been a value-added franchise but it makes perfect sense when it comes to the branch rationalization.”
Other financial firms have exited or scaled back consumer lending. Citigroup Inc. announced last month that it will close 376 branches and cut as many as 720 jobs at its CitiFinancial consumer-lending businesses in the U.S. and Canada. American International Group Inc. may sell consumer unit American General Finance Corp., the Financial Times said in May.
Consumer Loans
Wells Fargo Financial is the division that sold consumer loans and mortgages to borrowers with blemished credit. Wells Fargo paid $6.8 million in April 2007 to settle a class-action suit that accused the unit of obscuring fees and penalties on subprime mortgages between 1999 and 2005.
The bank will stop making nonprime home loans because the business had “become so small that we decided we would no longer devote resources to maintaining” it, Kvamme said.
Subprime loans played a role in the worldwide credit crisis when U.S. home prices plummeted, causing delinquencies and foreclosures and slashing the value of securities tied to the mortgages. Subprime loans are made to borrowers with bad or limited credit histories or high debt burdens, making them more prone to default than conventional mortgages.
Less than 2 percent of Wells Fargo’s real estate loans were originated in the consumer-finance unit in the first quarter and of those, less than 3 percent were nonprime, he said.
Auto Lending, Credit Cards
Wells Fargo “will stay focused on serving the nonprime segment with direct-to-consumer auto lending and credit-card lending,” Kvamme said. The unit had $7.3 billion of outstanding credit card loans at the end of the fourth quarter, according to a company presentation.
Of the job cuts announced yesterday, about 2,500 are branch employees while 1,000 are support staff based in Iowa, where the consumer-finance and home-lending businesses are located, Kvamme said. The bank will look to move employees into other roles, something it’s already been able to do for some, he said.
Wells Fargo Financial employed about 14,000 workers, out of the 267,400 Wells Fargo employees at the end of the first quarter, according to company statements.
The second-quarter charge of $137 million will go to severance expenses, while the remaining $48 million will be used to close branches, Kvamme said.
To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net
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