Wells Fargo & Co.'s CEO on June 1 tightened the time frame for reducing the bank's lofty efficiency ratio, which rose to 62.7% in the first quarter from 58.7% a year earlier.
Driven in large part by a broad cost-cutting effort, the bank aims to bring the ratio back down into a range of 55% to 59%.
"I think we should be able to achieve that goal next year," President and CEO Timothy Sloan said while speaking at a Sanford C. Bernstein & Co. conference. Wells executives had previously said they hoped to reach that goal in coming years.
The ratio, which measures noninterest expense as a share of revenue, jumped in part because of a fraudulent sales scandal that erupted late in 2016. That woe curtailed retail sales, hurting revenue, and it pushed up legal and regulatory costs, inflating the expense side of the equation.
First-quarter revenue declined about 1% from a year earlier, while noninterest expenses rose 6%. Wells reported that expenses linked to the sales issue added about $80 million in costs in the first quarter.
Sloan reiterated Wells' intention to reduce expenses by $2 billion over the course of this year and next, with the effort including the planned consolidation of about 450 branches. Those savings are to be reinvested in new technology and other innovative measures designed to boost both operating efficiency and the top line. In addition, Wells plans to trim another $2 billion in costs by the end of 2019, with those savings dropping directly to the bottom line.
Given that Wells has some 6,000 branches, and given that banks across the country are slashing branch counts as customers do increasingly more business online, a Bernstein analyst asked Sloan why the bank does not plan to close even more than the 450. Sloan said, at least for his bank, customers still want easy access to physical locations to consult with bankers and other experts in person. So for Wells, it is more a matter of carefully pruning out underperforming branches or those that are close to other locations, reducing costs but without removing convenience for customers.
"I think it's easy for folks to look at a large branch network like we have and say, 'Well, you have too many,' because people aren't going into branches anymore. Well, that's not right," Sloan said. "Maybe for some of our competitors, but it's not at Wells Fargo."