What Wells Fargo's Move Really Means

Wall Street Whispers: What Wells Fargo's Move Really Means

Excerpt:

It's just going to charge more for deposits, stop making risky loans and stop maintaining the employees and branches that it uses to achieve that end. For investors this is a good thing; for consumers it's a bad thing; and for the company and broader banking industry it's a sign of the times.

As of July 1, Wells Fargo began implementing a $5 monthly fee for basic checking accounts that fall below a $1,500 minimum balance. On Wednesday the San Francisco-based bank also announced plans to "restructure" its consumer-finance business by shutting down the Wells Fargo Financial division that has been operating for roughly a century.

As a result, Wells will stop originating subprime mortgages that were once part of the division -- something it indicated in regards to auto finance months ago -- and merge the rest of the division into the broader franchise. The change will result in 638 branch closures and up to 3,800 layoffs. Investors will see near-term charges of $185 million, or less than 3 cents per share, before taxes, which will be offset by cost savings by mid-2012.

Comment: Avoidance of the checking account fee is EZ (check the Wells website). Getting out of subprime is a sign of the times!

More on Wells Fargo Financial

More detail: Wells Fargo cuts division, plus 3,800 jobs nationwide

Excerpt:

Currently, Wells Fargo Financial has approximately 14,000 team members throughout the country, and 3,500 in Des Moines. The remaining 10,600 jobs will transition to other Wells Fargo units, including mortgage and community banking.

Laid off employees will receive 60 days' working notice and a severance package.

Affected Wells Fargo employees also are encouraged to apply for other jobs throughout the company. Wells Fargo currently has more than 400 open positions in the Des Moines area, Kvamme said.

Wells Fargo is Iowa’s largest bank in terms of deposits and Central Iowa’s largest private employer with about 12,900 employees in the Des Moines area.

Kvamme says the company is committed to the Des Moines area, including its buildings downtown. Wells Fargo Financial built a second headquarters building downtown in 2005.

Wells Fargo Financial grew out of the Des Moines-based consumer finance company known as Dial Finance that was acquired by Wells Fargo’s predecessor, Norwest Corp. in 1982.

“I’m incredibly sad,” said Des Moines businessman Richard Levitt, whose family owned Dial Finance and who engineered the sale to Norwest. Richard Levitt is a grandson of Jacob Levitt, who started the business in 1897.

“I didn’t see it coming,” he said.

Levitt said he did not know details of the decision but said the shutdown of Wells Fargo Financial could create opportunity for others to launch businesses in any areas of banking that Wells Fargo exits. “Any time there is a vacuum, it gets filled,” Levitt said.

With the elimination of Wells Fargo Financial, Wells Fargo will no longer originate non-prime mortgage loans. Subprime mortgages are largely blamed for the housing finance crisis over the past few years.

Rick Carter, a finance professor at Iowa State University said: “It sounds to me like one of the things they want to do is lower their risk by getting out of the subprime business.”

“The other thing is they are trying to add some efficiency by closing offices,” Carter said.

Comment: I would liken this to Ford dropping the Mercury brand. Ford is still going to sell cars but not branded with that logo. It's an efficiency move!