Wells Fargo’s conference call earlier this month to discuss the bank’s fourth-quarter earnings amounted to a mea culpa for new chief executive Charles Scharf.
In his first earnings report since joining Wells Fargo in October, Mr. Scharf acknowledged the problems that have been dragging on at the firm since 2016, when the fake-account scandal first came to light. He said he will institute “fundamental changes” to tackle the issues with “urgency and resolve.”
“We came out of the financial crisis as the most valuable and most respected bank in the U.S.,” Mr. Scharf said on the conference call. “But as you know, we made some terrible mistakes and haven't effectively addressed our shortcomings.”
In addition to pressure from regulator and lawmakers, a continued exodus of financial advisers, tarnished public reputation and flagging business lines, Mr. Scharf said the Wells Fargo expenses were unusually high in the last quarter of 2019. Noninterest expenses were up $685 million, or 23%.
Particularly interesting is the $166 million Wells Fargo spent on “the strategic reassessment of technology projects in wealth and investment management,” as CFO John Shrewsberry put it.
When asked what exactly the firm is reassessing, Mr. Shrewsberry said Jon Weiss, senior executive vice president of Wells Fargo wealth and investment management, which includes the Wells Fargo Advisors' brand, “substantially reconstituted the leadership team” and set new priorities that take the division in a different direction with technology. The result was “impairment to the capitalized software development costs.”
In a slideshow accompanying the earnings report, Wells Fargo said the $166 million primarily went toward equipment. Was the team just sorely in need of some new computers?
Unfortunately, neither Mr. Shrewsberry nor Mr. Scharf provided more detail, and a Wells Fargo spokesman declined to comment further.
But it’s no surprise Wells Fargo has struggled with technology. In February 2019, a system outage took the bank’s website, mobile apps and ATMs offline. Though the cause was apparently due to a power shutdown at a server facility, Wells Fargo faced criticism for not having a backup ready.
In June 2018, regulators identified problems across Wells Fargo’s technology operations, including cybersecurity vulnerabilities and risk-management inconsistencies. The Office of the Comptroller of the Currency included technology systems when it told Wells Fargo in 2019 to improve its human resources functions.
According to the Wall Street Journal, out-of-date systems have hampered Wells Fargo’s ability to meet regulator demands, monitor employee pay or build a modern platform for financial advisers.
Though advisers are loath to go on the record with complaints about their previous firms, technology is often cited by former Wells Fargo advisers when going independent. For example, James Alioto mentioned “greater options and technology offerings for our clients” in a press release about moving his $325 million firm, Alioto Wealth Management Group, from Wells Fargo Advisors to Raymond James. The firm declined to comment to InvestmentNews.
Wells Fargo Advisors hasn’t given an update on its partnership with SigFig, a startup it partnered with in 2016 to build a robo-advice platform. While SigFig raised an additional $50 million in venture capital in 2018, it recently laid off about 10% of its workforce, according to a Business Insider report. SigFig did not respond to a request for comment.
It’s unclear what other technology projects the wealth and investment management team could be reassessing. Wells Fargo has been noticeably quiet about any other technology developments.
"There’s no reason Wells Fargo shouldn’t have best-in-class technology," Mr. Scharf said on the call, but he admitted that he doesn’t yet have all the answers. Which is fair considering he’s only been in charge of the beleaguered banking giant for three months.
What Mr. Scharf does have is a plan, a “really clear list of the work that we have to do,” developed with Saul Van Beurden, head of technology at Wells Fargo. The team is actively putting time frames around its priorities, Mr. Scharf said.
But for now, Wells Fargo advisers must wait and see.
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