Wells Fargo Lowers Profitability Targets
May 24 2016 - 4:37PM
Dow Jones News
By Emily Glazer
Wells Fargo & Co. on Tuesday gave lower targets for
profitability, citing persistently low interest rates that have
hammered big banks' lending businesses.
The San Francisco-based bank's chief financial officer, John
Shrewsberry, said at an investor presentation that Wells Fargo's
return on equity target over the next two years now ranges from 11%
to 14%, down from a target of 12% to 15% set at its last investor
day event in 2014.
Mr. Shrewsberry also reduced the bank's guidance for return on
assets to a range of 1.1% to 1.4%, from 1.3% to 1.6% set in 2014.
Shares of the bank rose 1%, but trailed broader bank-stock
benchmarks.
The executive reiterated the bank's "lower for longer" interest
rate expectation, though he did highlight some growth areas. He
said the bank expects to grow net interest income year over year
this year "even without additional rate increases."
Mortgage banking fee income is expected to grow "modestly,"
along with growth in card fees and deposit services charges, he
said.
Mr. Shrewsberry added that the bank expects "continued stress"
in its oil and gas portfolio this year. "More credit losses will be
realized and there is the potential for additional reserve builds,"
he said.
Wells Fargo's treasurer, Neal Blinde, is expected to share more
information about "total loss-absorbing capacity," or TLAC, at the
investor presentation as well. Wells Fargo is one of the banks most
affected by the new rule. It needs to raise around $40 billion of
new debt to meet the regulation, or around $50 billion to include
its own internal buffer, according to a company presentation.
On the retail side, Wells Fargo said it plans to reduce its
branches, with a net decrease of 60 to 70 this year. The bank
didn't comment on where those reductions will occur or how many
employees will be affected, though it has the broadest branch
network across the country with more than 6,000 branches.
"We make deliberate choices with each location," said Michelle
Lee, a retail bank executive overseeing the Eastern region. "We
find the highest-impact sites and maintain sufficient network
density." She added that since 2011, there's been a net reduction
of 113 stores, not including the expected decreases this year.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
May 24, 2016 16:22 ET (20:22 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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