Wells Fargo (WFC) executives said the bank shuttered 39 branches in the first quarter of 2017, putting a dent in its goal last year of cutting 200 branches over the next two years.
Currently, the San Francisco-based bank has the most branches of any bank in the U.S. with more than 6,000 banks. But it has joined with industry trends of downsizing made possible by increased mobile banking and advanced ATMs. For an industry that is historically hungry for efficiencies, the banks are fully embracing automation.
In the earnings call Thursday, Wells Fargo CEO Tim Sloan expressed disappointment with the bank’s current efficiency ratio—the bank’s overhead as a percentage of revenue—of 62.7%, higher than the optimal ratio of 50%. Non-interest expenses have risen to $13 billion, up $577 million from the last quarter, due to personnel costs and more.
“We appreciate we’ve got to improve our expense efficiency ratio,” Sloan said on the earnings call. He told investors to expect higher efficiency numbers by investor day. “62.7% is not acceptable.”
Sloan indicated Wells Fargo was on track to close 200 branches but also noted the numbers were not in stone and subject to change. If the bank wants to close more, it can close more.
‘We’ve hit some rough patches”
Wells Fargo’s branch interactions were down year-over-year, a number that at first look seems to reflect the fake accounts scandal that has plagued the bank. Months after news emerged that up to 2 million credit card and checking accounts were created by pressured employees without customer permission, the bank’s performance is still suffering.
But executives say the lower branch interactions reflect changes to the industry and the rise in mobile and online banking, an area in which Wells Fargo has excelled. The bank has 28.1 million digital customers, and over 20 million of them use the mobile apps, which offer card-free access at ATMs. Should these numbers increase further and branch interactions decrease, the bank may be motivated to accelerate its plans.
Sloan and CFO John Shrewsberry pointed to other progress the bank was making on the mobile fronts. That includes a partnership with Intuit to develop a banking API—a link between the bank and third parties—to allow customers to control their data privacy following an initiative spearheaded by Jamie Dimon at JPMorgan Chase. With tighter controls on data and privacy and plans to further slim down branches, the human risk factors—pressured employees—that led to the initial scandal will be gone. Meanwhile, customers will have more oversight over their own data.
This ending will likely fail to satisfy many Wells Fargo stakeholders, though it should please the shareholders who could profit from lower costs. Low-level retail banking employees will be laid-off, and customers may miss having more human interaction. But Sloan said the bank was dedicating more of its time and energy to balance things for all stakeholders after the scandal, a measure reflected in the quarter’s high personnel cost.
“When you step back and look at how serious the retail sales practice issues were and the reputational impact on the company you can only reach that conclusion,” he told an analyst on the call. “Having said that I also step back and appreciate that we’ve been in business for 165 years and we’ve had periods in our history where we’ve hit some rough patches.”