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Wells Fargo prepares to shed more businesses

The Financial Times logo The Financial Times 7/16/2017 Alistair Gray in New York

Wells Fargo admitted last September that pressure on branch workers from bosses had led thousands to turn to fraud: SAN FRANCISCO, CA - JULY 14: A Cable Car passes a Wells Fargo Bank branch office on July 14, 2017 in San Francisco, California. San Francisco based Wells Fargo & Co. reported better-than-expected second quarter earnings with profits up 5 percent to $5.8 billion, or $1.07 per share. (Photo by Justin Sullivan/Getty Images)© Getty SAN FRANCISCO, CA - JULY 14: A Cable Car passes a Wells Fargo Bank branch office on July 14, 2017 in San Francisco, California. San Francisco based Wells Fargo & Co. reported better-than-expected second quarter earnings with profits up 5 percent to $5.8 billion, or $1.07 per share. (Photo by Justin Sullivan/Getty Images)

Wells Fargo is preparing to jettison more businesses as the US bank with $1.9tn in assets works to restore investor confidence in the wake of the sham accounts scandal.

“We get a little bit smaller, a little bit less complex and we can focus on what we’re good at,” John Shrewsberry, chief financial officer, told the Financial Times. “We could be more focused.”

The second-largest US bank by market value is being forced to rethink its business model after employees signed up customers for accounts without their knowledge.

The sales debacle tarnished the lender’s reputation for simplicity and prudence.

For years Wells was driven by cross-selling to customers as many products as possible.

But the bank admitted last September that pressure on branch workers from bosses had led thousands to turn to fraud. Employees faked signatures and pin numbers to sign up consumers for accounts and credit cards they knew nothing about.

Executives think Wells needs to emphasise products that are “most relevant” for customers and also produce the highest returns for shareholders. 

Disposal candidates, Mr Shrewsberry said, were “smaller things” worth “hundreds of millions of dollars”.

“There are a handful of businesses in our mindset,” the chief financial officer said, adding the bank had “choices to make”. “They’re not at the scale of most of our businesses . . . not top-tier providers.” He did not say which divisions could be on the chopping block.

In the past three weeks, Wells has struck deals to sell its share registration arm to London-listed Equiniti for $227m and also its commercial insurance business for an undisclosed sum.

Already, Wells is more concentrated in US commercial banking than its biggest rivals JPMorgan Chase, Bank of America and Citigroup.

The San Francisco-based group has only a limited presence overseas and a relatively small capital markets and securities operation.

Even so, Wells employs 273,000 people and operates about 90 different businesses. One in three American households is a customer.

Its portfolio takes in a finance operation for dentists and vets, a clearing services business and a corporate trust division as well as a plethora of smaller interests.

The group, whose biggest shareholder is Warren Buffett’s Berkshire Hathaway, is also cutting costs as it recovers from the accounts scandal, which cost Wells its status as the world’s most valuable bank.

Mr Shrewsberry told analysts on Friday that Wells was “collapsing” more than 50 regional offices into a smaller number of bigger centres.

Further asset sales are unlikely to be driven by a need to shore up the balance sheet, however. Regulators at the Federal Reserve recently gave the bank a clean bill of health in its stress test and the green light to distribute $19bn in capital to shareholders over the next year.

In a sign that executives are not plotting a radical slimming down of the group’s portfolio, Tim Sloan, chief executive, said on Friday that Wells was benefiting from a “diversified” business model. He was presenting Wells’ first earnings improvement in seven quarters, helped by higher interest rates.

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