Wells Fargo Job Cuts

Wells Fargo has reportedly let go hundreds of mortgage bankers as the bank makes a major shift away from home lending activities.

The firm has reportedly discontinued residential lending as demand for loans declines amid rising interest rates. This move is in line with previous strategic plans.

Mortgage Bankers

Wells Fargo has announced the layoff of hundreds of mortgage bankers across America as it seeks to streamline its home lending business. The reductions come as Wells Fargo attempts to create a more focused home loan portfolio in light of an apparent slump in demand for mortgages due to interest rate hikes.

Wells Fargo's strategy is to reduce its mortgage servicing portfolio and exit the correspondent lending channel, which relies on small lenders for loan origination. The bank hopes to reduce the size of its mortgage servicing rights book while focusing on existing customers and minority communities.

Wells Fargo recently made a strategic shift under CEO Charlie Scharf, culminating in their payment of a $3.7 billion fine last year for numerous violations of law. Furthermore, Wells Fargo agreed to reimburse consumers and the U.S. Consumer Financial Protection Bureau for misdeeds such as charging illegal fees and interest on mortgages, auto loans and overdraft fees on checking accounts.

Its actions come as the bank is also reducing its mortgage servicing portfolio, consisting of loans it owns from other lenders but pays for through payments on mortgage servicing rights (MSRs). According to a statement in its fourth-quarter earnings report, they decided against purchasing loans from correspondent lenders due to lower margins and reputational risk.

CNBC reported that many of the laid-off mortgage bankers were considered high performers, having generated $100 million or more in loan volumes within a year. Some had been flown out last year to an exclusive sales conference in Palm Desert, California where they were presented with various rewards.

In the financial world, retreats are often held to honor top salespeople. Not only is recognition given, but also a variety of recreational activities are usually included to foster camaraderie and build company culture.

In the US, it's often a tradition to reward top producers with trips to luxury resorts where banks can celebrate their sales team's accomplishments. According to sources familiar with the situation, some of those laid-off mortgage bankers were rewarded with trips just weeks after being informed about their dismissal at work, according to people familiar with the situation.

Commercial Bankers

The bank's home mortgage business has seen a slowdown due to rising interest rates and higher inflation. Furthermore, refinancing and other lending activity have taken a hit as well.

American Banker and Business Insider report that the bank has cut thousands of jobs within its mortgage unit this year due to declining volumes year over year.

Michael Scharf, Wells Fargo's CEO, has been actively engaging employees and providing them with severance packages and career guidance in response to the layoffs. Additionally, he is striving to retain as many personnel as possible.

CNBC reports that those affected by the cuts include some of the bank's top mortgage bankers. Some had reached $100 million in loan volume last year.

According to the network, other mortgage bankers and home loan consultants are being let go in addition to those performing well, due to a reduction in sales volume. The cuts will enable the bank to focus on smaller, local markets.

These workers are expected to be replaced by new employees trained by existing Wells Fargo personnel. The bank has been striving to streamline its mortgage business and reduce expenses, so this move may be an attempt at cutting overhead.

Scharf also revealed that the company has taken measures to reduce its real estate portfolio and lower lending across all of its businesses. These moves will allow the bank to restructure itself and exit some non-core activities, according to Scharf.

According to a source within the asset management unit - which offers advisory services and equity research - they are looking to automate as much of their processes as possible. They plan on eliminating some back office work, freezing hiring, and replacing people with technology in an effort to maximize efficiency, according to this source.

This year, the bank has already let go of about 700 commercial banking employees; further cuts could take place soon as part of a multi-billion dollar cost cutting measure that could affect tens of thousands of employees at the institution.

Retail Bankers

Wells Fargo announced plans to cut up to 26,500 jobs over the next three years, impacting bankers across various areas such as retail banking. The San Francisco-based company cited "changing customer preferences," including the widespread adoption of online banking, for their cuts.

As the economy continues to contract, many financial institutions have paused hiring and reduced headcount. This is particularly true for large banks which have been hit hard by the Federal Reserve's aggressive rate increases.

Multiple banks have announced the reduction of thousands of positions within their home lending divisions this month. JPMorgan Chase alone cut hundreds of mortgage workers this month, including some managers; USAA too is trimming 130 workers and has reduced its offerings in this segment; PacWest Financial of Los Angeles will also be laying off 200 personnel at Civic Financial.

The home-lending industry has been hard-hit by a drop in mortgage demand as interest rates rise. Some companies have been able to weather the storm by adjusting their business strategies; however, others - such as fintechs and mortgage-backed securities investors - have discovered it harder to make money from shrinking portfolios of loans than from flipping them into higher interest-bearing assets.

Some experts predict the home-lending downturn will eventually come to an end, while others warn it could be a prolonged struggle where lenders cut even more jobs. This is particularly true for large banks which rely heavily on their banking charters in order to sell loans to investors more easily than smaller businesses that cannot access attractive rates of capital raising.

Some smaller firms have cut back on staff in an attempt to avoid being embroiled in the same turmoil as larger institutions. Some even went so far as to freeze hiring completely - a strategy used by many smaller businesses.

Other companies that have adopted this strategy include online financial services company Chime, which laid off 12% of its staff in 2022. Although it was once the largest mortgage lender in America, its growth is limited due to a Federal Reserve order that prohibits it from becoming any larger.

Asset Management

Bloomberg News reports that Wells Fargo & Company's $578 billion asset management unit has begun to reduce jobs. The San Francisco-based lender said Friday it will end a moratorium on layoffs as it plans to implement cost cuts that could reach billions of dollars, according to Bloomberg News.

These changes are part of Charles Scharf's cost-cutting initiative, which he announced in July when he told analysts he expected a "multiyear, broad effort" to reshape the firm. To this end, he has launched new products and services while cutting expenses in underperforming areas.

Job cuts would affect a wide area of the firm's operations, including wealth and investment management division. This unit manages proprietary mutual funds as well as separately managed accounts for clients who own stocks, bonds and other assets. They sell these products through brokers, banks, insurance companies, retirement platforms and registered investment advisers.

Asset management saw a 9% growth in assets under management last year, according to the bank's most recent earnings report. However, net outflows to equity and fixed-income funds exceeded inflows into lower-earning money market instruments.

As the bank attempts to rebound, it must do so without jeopardizing its reputation or customers' faith in it. As part of their cost-cutting initiatives, they have hired several executives to assist with this task.

Recent quarter, the Asset Management unit reached a record high in assets under management. Unfortunately, growth was hindered by several scandals that started in 2016 when employees opened fake accounts and were fined by regulators. These events ultimately forced the Federal Reserve to impose an asset cap on the bank, restricting its expansion potential.

Wells Fargo boasts a robust portfolio of fixed-income products and an expanding presence in private markets. To support its ESG investing efforts, Nico Marais, CEO of Wells Fargo Asset Management, revealed to P&I that their research platform and data source have been integrated.

The asset management division has also scaled back on its mortgage business, which was a major source of Wells' losses. The lender's home-loan division - an important source of revenue - has lost hundreds of employees since the start of this year.