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Wells Fargo Announces Layoffs as Business Enters Freefall

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Wells Fargo Announces Layoffs as Business Enters Freefall​​

Wells Fargo announced it is cutting 638 mortgage jobs, due to a slowdown in business.

“After carefully evaluating market conditions and consumer needs, we are reducing to better align with current volumes,” Wells Fargo spokesman Tom Goyda said in an emailed statement.

Rising interest rates have caused a decrease in the demand for re-financings.  Couple that with the loss of the SALT tax deduction, stagnant home values, a punitive asset cap from the Federal Reserve and the reputational damage that Wells Fargo has sustained in recent months and years – and you have a recipe for disaster. 

According to Reuters, Wells Fargo’s mortgage banking income “fell 33% in the second quarter from a year earlier.”  Are Wells Fargo’s chickens coming home to roost?  Is Wells Fargo the next Lehman Brothers?  Or is the mortgage market just recalibrating?  It is probably too soon to tell.  Banks are struggling in general due to rising interest rates, stagnant wages, broad unaffordability and oversupply.  Wells Fargo may just be a little more susceptible to changes in external market conditions than its peers, by virtue of its size.  On the other hand, Wells Fargo may be experiencing an erosion in consumer confidence, heavy fines, and regulatory strain precisely at the wrong time when the market is poised for correction.

Bankageddon?  Presaging dark days ahead, Wells Fargo’s own economist, Kirk Hartman, of Wells Fargo Asset Management, expects economic growth to slow in 2019, leading to a market correction of around 10%.

Since the economic downturn, Wells Fargo has been the country’s largest mortgage originator.  So, it is no surprise that Wells Fargo is bearing the brunt of the mortgage origination slowdown.  Total mortgage originations improved from just $346 billion in Q1 2018 to $447 billion in Q2 2018.  At these levels, originations are still down 10% to 15% from a year earlier.

Wells Fargo’s “predatory behavior” and “toxic culture” aside, it is one of the largest international banks, which has amassed retained earnings of $211 bn.  Dealing with an operation of that magnitude is fraught with difficulties even when a company is in “business as usual mode,” let alone in a situation where the company must rebrand its image and revamp its corporate culture from the ground up.

Some commentators believe that the solution to banking institutions that defraud their customers is greater enforcement.  Vermont Law School professor Jennifer Taub said, “Until law enforcement holds gilded grifters accountable, they will continue to operate companies ... unlawfully.”

But, it is also the trend toward consolidation leading into 2000 and through to the Great Recession that is to blame; recently, the trend has been against consolidation and competition has increased, ostensibly leading to greater corporate accountability and better choices for consumers.  Credit unions and small community banks have gained market share in the mortgage lending arena, crowding out the near-oligopoly of the big banks.

But, history is revealing.  Wells Fargo became what it is today through an acquisition of First Interstate Bank in 1996 and then by being acquired by Norwest a year later, after which the merged conglomerate gobbled up 13 smaller banks – increasing the size of its operations by 4-fold in just 4-years between 1996 and 2000.  The bank continued to grow leading up to the Great Recession, during which time it absorbed Wachovia.  As the bank grew and grew, absorbing and acquiring along the way, the corporate culture that developed in the retail community banking business was a numbers-driven, top-down, kill what you eat culture.  With incentives for results at any cost and little oversight or quality control, sharp dealing and outright fraud abounded.

With a workforce of 264,500, Wells Fargo is one of the nation’s largest employers, for good or ill, and in many ways Wells Fargo is a microcosm of the economy at large, and more particularly, of the banking industry and its health (or lack thereof).

Whatever Wells Fargo’s future, it has firmly established its place as a cautionary tale of greed run amok and the consequences of placing profits over people.








Category: Tax

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