Wells Fargo Could Do With Some Pruning
Wells Fargo & Co.'s management has its hands full restoring clients' trust after settling a cross-selling scandal involving more than two million unauthorized customer accounts. Still, that shouldn't keep them from seeking out ways to improve profitability. Slimming down the bank's physical presence would help.
While some of its largest rivals have shuttered underutilized branches or shrunk existing ones as part of overall cost reductions, Wells Fargo has been slower off the mark. Bank of America Corp., for one, has closed or sold some 20 percent of its branches over the past five years -- six times as many as Wells Fargo -- without hurting its branch deposit base (in fact, it has grown).
Shutting 20 percent of branches, or 1,300 locations, would result in an estimated $2.7 billion in after-tax savings, according to CLSA analyst Mike Mayo. That translates to an earnings bump of roughly 13 percent, which would undoubtedly be well-received by shareholders.
Wells Fargo hasn't ruled out the idea of reducing its physical presence, and there are signs it's willing to do so. Last month, it promoted the former head of consumer lending to a digital-focused role, which indicates it's serious about enhancing online offerings. Although its mobile and online services are already responsible for 88 percent of all monthly customer interactions, 10 percent of interactions are still attributed to branch visits, which is basically triple the 3.5 percent figure that Bank of America now boasts.
The bank revealed yesterday that foot traffic to its branches is down 11 percent year over year and new checking-account openings are down 44 percent, which isn't a surprise considering what we now know about the legitimacy of some of those accounts. If a decline in foot traffic persists, expect calls for branch closures to get louder.
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