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Analysts drill Wells Fargo on elevated expenses

Wells Fargo & Co. executives spent the majority of the bank's 2019 fourth-quarter earnings call fielding questions on expenses.

Management acknowledged the elevated level of expenses at the start of the Jan. 14 call, with both President and CEO Charles Scharf and CFO John Shrewsberry saying in prepared remarks that expenses were too high. The company reported noninterest expense of $15.6 billion in the 2019 fourth quarter, an increase of $2.3 billion from the year-ago period, driven in part by higher operating losses. The company booked $1.5 billion of litigation accruals in the quarter. The efficiency ratio was 78.6% in the quarter and 68.4% for the full year.

"We are well aware that our expense levels are significantly too high. Part of this is driven by significant project expense related to historical issues, part is due to the necessary investments in technology, part is due to significant inefficiencies that exist across the organization," Scharf said in prepared remarks. "But there is no reason why we shouldn't have best-in-class efficiency with these businesses at this scale, and that ultimately will be our goal."

Those acknowledgments did little to head off multiple questions from analysts on how the bank could lower its expenses. Jefferies LLC analyst Ken Usdin asked whether the bank might reconsider business lines. Scharf responded by saying that having a combination of consumer, wealth and wholesale businesses under one roof provides clients with significant benefits, but the company will look to cut expenses where possible.

"We have been pruning," Scharf said. "As we go through these reviews and talk about some of the smaller things that we do, it is a good opportunity to ask, do we need to continue to do all of these things? Will they make a difference first to our clients and ultimately to us? And so I would expect to have some things come out of that, but I put them in the category of pruning at this point."

Scharf took on the role of CEO about three months ago, which he said makes it difficult to offer concrete timelines. He said many observers appear focused on the bank's Federal Reserve consent order, which limits the bank's asset growth, but he said the bank also has 12 public enforcement actions requiring significant attention. He said the bank has a clear path to resolving the compliance issues but could not offer a specific timeline.

"I'm not suggesting here that any of these public issues will be closed this year. What I'm suggesting is that we're going to do all the work that's required," he said. "The time frames will be driven by when we accomplish that work and when the regulators are satisfied by it."

The company's stock was down 4.03% as of 12:20 p.m. ET.