Wells Fargo to shut at least 484 branches from 2016 through 2018
Wells Fargo is to shut at least 484 branches from 2016 through 2018 in its effort to recover from the scandal over fake bank accounts. Branch closures are being accelerated because changes to how staff is paid could erode branch sales and legal and regulatory investigations may require more spending. Both factors have arisen in response to the bank's admission that its staff opened up to two million fraudulent accounts without customers' consent. An approximate figure of 485 branch closures represents roughly 8% of the US lender's 6,000 branches nationwide.

SAN FRANCISCO — Wells Fargo intends to shut hundreds of branches this year and next as it works to recover from a scandal over bogus bank accounts.

The bank is accelerating the pace of branch closures because its changes to how employees are paid could erode sales at branches, while legal and regulatory investigations could force additional spending, analysts said Tuesday.

The changes in pay for employees and the investigations are responses to the bank’s disclosure that its employees opened up to 2 million fraudulent checking and credit accounts without customers’ permission.

“With Wells Fargo’s change in the compensation structure, they are likely expecting softer sales results as the company seeks to rebuild trust,” said Michael Yoshikami, founder of Walnut Creek-based Destination Wealth Management, an investment firm. “Lower sales goals will lead to lower corporate profits, and Wells Fargo is taking appropriate action to rightsize the company based on this new culture.”

Earlier this month, Wells disclosed a new employee compensation plan that won’t be based on sales goals. Customer service, growth in primary customers, household relationship growth and risk management will be the primary metrics to determine compensation for branch bankers.

From 2016 through 2018, San Francisco-based Wells Fargo expects to close at least 484 branches, the bank told analysts on a conference call last week.

“Based on observed trends in customer behavior, we began to accelerate branch closures in 2016 and closed 84 branches mostly in the second half of the year,” John Shrewsberry, Wells Fargo’s chief financial officer, said during the conference call. “We expect the pace of branch closures to increase to 200 branches in 2017 and we expect closures at that level or slightly higher in 2018.”

The bank said it will restructure employment in marketing, finance and technology; reduce spending on facilities and on travel not related to customers; intensify online and digital products; and deliver a new generation of payments capabilities.

“We’ve been working on a number of initiatives that we expect will reduce expenses by approximately $2 billion annually by year-end 2018 with the full-year benefits starting in 2019,” Shrewsberry told analysts.

Wall Street has pressed for Wells Fargo’s new chief executive officer, Timothy Sloan, to swiftly right the ship in the wake of the scandal that came to light Sept. 8 and to keep spending under control.

“Wells is basically responding to what will make Wall Street happy, because analysts are looking at all banks to find more efficiency,” said Ken Thomas, a Miami-based independent bank analyst. “Investors will be saying that the new guy came in and is making the hard decisions and taking the hard actions that are needed.”

On Tuesday, Marty Mosby, director of bank and equity strategies with Tennessee-based investment firm Vining Sparks, affirmed that Wells Fargo should be rated a “market out-perform.” The price target is $62. Wells shares fell 2.8 percent Tuesday and closed at $53.78.

“Previously, the models for branches was each one had to cover a radius of three to five miles for each branch” Mosby said. “You look at it now, Wells and the other big banks want each branch to cover a radius of 10 to 15 miles. Then they will use stand-alone ATMs to cover the gaps.”

Mosby warned that Wells won’t benefit as much as its rivals from the current environment of rising interest rates because of the bank’s spending challenges.

So far, Wells Fargo has spared its Bay Area branches from the closures. Wells operates 256 branches in the nine-county Bay Area.

“Since January 2015, Wells Fargo has closed two branches in the greater Bay Area, but we have opened four new branches,” said Ruben Pulido, a bank spokesman.

Wells Fargo operates more than 6,000 branches nationwide and 1,000 in California. The approximately 485 branch shutdowns represent roughly 8 percent of its current totals.

The bank didn’t identify any branches on the chopping block.

“We see rightsizing the company as a positive for the bank and a constructive step forward in its attempt to recover from a very difficult crisis of 2016,” Yoshikami said.