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Does a senator who is a former law professor at Harvard University understand mathematics better than the CEO of giant bank Wells Fargo & Co. (WFC)?
This is a question for investors after the company has acknowledged this week that it would reduce its workforce by 5% to 10% over the next three years to achieve ambitious cost-cutting goals. . With a current workforce of approximately 265,000, this represents 26,500 employees.
A year ago, at a hearing in Washington, US Senator Elizabeth Warren suggested to CEO Tim Sloan that the plan announced by the bank to cut costs by $ 4 billion by the end of 2019 would mean that it should reduce more than 20,000 employees. And Sloan replied, "You use mathematics inappropriately."
In an email released on Thursday, the Massachusetts Democrat's office reminded reporters – with a benevolent video clip – and demanded that Sloan be fired. His reasoning is that thousands of Wells Fargo employees risk losing their jobs due to poor management decisions, namely pushing employees to sell as many products and accounts to customers as possible.
"Clearly, Senator Warren was right," said Dick Bove, a Wall Street analyst for five decades, who now runs a bank-focused investment fund at Rafferty Holdings LLC. "If you're cutting costs, you may not know exactly what you're going to do, but you should know that you have to lay off a lot of people."
While Warren is one of 100 US senators, his comments should not be taken lightly. Not only do many observers think she could run for president in 2020, but her harsh Senate interrogation of Sloan's predecessor, John Stumpf, about the alleged ill-treatment of Wells Fargo predates his "retirement." End of 2016.
Since then, the bank has reported more than $ 2 billion in high legal fees for scandals, including the opening of millions of unauthorized accounts. And earlier this year, the Federal Reserve took the drastic step of ordering the Federal Reserve to refrain from continuing to grow its assets until corporate governance and risk management improve. . In May, Warren also asked Fed President Jerome Powell to accept the vote of the central bank's board of governors before releasing Wells Fargo sanctions.
Betsy Duke, chair of Wells Fargo's board of directors, said in a statement sent Friday by a company spokeswoman that Sloan had "unanimous support from the board, and that this support is Has never faltered ".
"In his two years as CEO, Tim has led to a significant transformational change at Wells Fargo, benefiting all stakeholders," said Duke. The spokeswoman declined to comment further, and Sloan was not available for an interview.
Warren's email was released after the bank issued a press release on Thursday, noting that Sloan had informed employees at a "town hall" meeting of upcoming workforce reductions. He cited "the evolution of customer preferences, including the accelerated adoption of digital self-service capabilities, the focus on operational excellence and the ongoing commitment." in favor of efficiency ". The decline will come from both "displacement" – layoffs – and "the normal attrition of team members," the bank said.
And that is exactly what Warren did during the October 2017 Senate hearing: it is the employees who are suffering from the mistakes of management.
In May 2017, months before the hearing, Wells Fargo had announced to investors that it would reduce non-interest expenses by $ 2 billion by 2018 and $ 2 billion. dollars by 2019. As Bove says, any leader or analyst could easily extrapolate consequences by glancing at his income statement; Last year, nearly 60% of Wells Fargo's non-interest expenses were covered by salaries, bonuses, commissions or benefits.
In other words, it would be almost impossible for the bank to reduce so much of its costs without laying off many employees. But Sloan fell back.
"Now that the false accounts scandal has tarnished Wells Fargo's reputation, your way to pump profits and keep Wall Street investors happy is to reduce costs by laying off inexperienced employees," Warren Sloan said.
"Senator, you use math for -" says Sloan.
"Yes, I'm using maths," Warren interjected.
"You use mathematics inappropriately," said Sloan, who was formerly chief financial officer of Wells Fargo.
To the credit of the CEO, he refused to promise at the time that he would not fire of employees.
"I have a responsibility to the 270,000 team members to make sure the company exists and is successful year after year," Sloan told Warren.
Yet, in early 2018, Wells Fargo sought and obtained from the Federal Reserve permission to buy back $ 24.5 billion of its own shares over the coming year, a financial engineering tactic used to increase earnings per share. increase the stock price. Such an initiative confirms Warren's argument that investors come before base employees.
It's not exactly a brilliant public relations moment for Wells Fargo, or the CEO, after more than two years of poor public relations moments.
David Hendler, director of the bank analysis firm Viola Risk Advisors in New York, believes that Sloan should leave – if, for now, break the scandals of the bank.
"These negative stocks seem to recur frequently," Hendler said. "They are tainted by that."
And haunted by Warren's math.
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