WFC Wells Fargo and Company

By Emily Glazer 

Wells Fargo & Co. will remain constrained by a regulator-imposed limit on growth for longer than expected, its chief executive said Thursday, as the bank continues to address the ramifications of risk-management failures.

Citing "widespread consumer abuses," the Federal Reserve in February imposed an asset cap on Wells Fargo, an unprecedented enforcement action that threatened to crimp the San Francisco-based lender's revenue and profit growth.

Wells Fargo said at the time that reviews of its plans related to the Fed's enforcement action would be completed by October. The Fed would need to sign off on those plans before the cap is lifted.

But on Thursday, CEO Timothy Sloan said during Wells Fargo's investor day presentation that the bank needed more time to address and incorporate feedback from the Fed, and that the asset cap would continue into the first part of next year.

Wells Fargo is barred from growing past the $1.95 trillion in assets it had at the end of 2017 unless it gets regulators' permission. It can continue to lend and take deposits.

The updates hit Wells Fargo at a difficult time. Analysts and investors are looking for revenue and business growth to return while addressing regulatory scrutiny across the firm.

Mr. Sloan said Wells Fargo is having a "constructive dialogue" with the Fed on its recently submitted plans, but can't disclose further information due to confidential regulatory discussions.

Despite the delay, Wells Fargo Treasurer Neal Blinde said during Thursday's investor presentation that Wells Fargo won't have to take as many actions as it expected related to the Fed's asset cap since "loan and deposit growth is below previous expectations," according to the investor presentation.

The impact on net profit after tax, he said, will likely be less than $100 million instead of the range of $300 million to $400 million Wells Fargo initially disclosed in February. He also said that while the asset cap's earnings impact was minimal in the first quarter, it is expected to "modestly increase" in future quarters.

Still, investors are growing weary.

Barclays banking analyst Jason Goldberg wrote in a research note Thursday that while the market may view Wells Fargo's financial outlook favorably, portfolio managers "keep on telling us they need to see the negative headlines abate...and revenue growth to return."

In April, the bank settled with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau for $1 billion over failures to manage risk, causing it to adjust first-quarter earnings lower by $800 million.

In the first quarter, revenue fell to $21.9 billion, down nearly 2% from a year earlier. Total loans of $947.3 billion declined compared with the prior and year-earlier quarters. And the bank's mortgage business, once the largest in the U.S., has shrunk and now trails Quicken Loans.

Wells Fargo's expenses have also remained high, in part because of the bank's need to address regulatory and business issues.

Finance Chief John Shrewsberry said the bank is still on track with its goal of cutting expenses by $4 billion by 2019. He said Thursday its expense range in 2019 is $52 billion to $53 billion, which excludes any additional litigation accruals and penalties.

Mr. Shrewsberry said in January -- when the bank disclosed its first expense targets -- that its 2018 expenses would likely be between $53.5 billion and $54.5 billion. Mr. Shrewsberry also said Wells Fargo's two-year return on equity target was between 12% and 15%. Last year, the closely watched profitability metric stood at 11.4%.

Wells Fargo's consumer-banking division is bearing much of the expense cuts.

On Thursday, the bank said it would continue to reduce its branch count, lowering it to 5,000 branches by 2020. Mary Mack, head of Wells Fargo's consumer bank and consumer lending, said that would reduce branches by about 1,000 from present.

The closures will yield expense savings of about $500 million annually, she said. Ms. Mack said the bank expects to have around 5,500 branches by the end of 2018.

Wells Fargo executives also talked about technology investment and more movement toward digitizing that it hopes will save costs, retain customers and attract new clients.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

May 10, 2018 16:42 ET (20:42 GMT)

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