Wells Fargo exits subprime; cuts 3800 jobs

Source: Wells Fargo

Wells Fargo & Company (NYSE: WFC) today announced the restructuring of its Wells Fargo Financial division, including closing its 638 Wells Fargo Financial stores across the U.S. and exiting the origination of non-prime portfolio mortgage loans. The remaining consumer and commercial loan products offered through Wells Fargo Financial will be realigned with those offered by other Wells Fargo business units and will be available through Wells Fargo's expanded network of community banking and home mortgage stores, now the nation's largest.

Because of its 2008 merger with Wachovia, Wells Fargo's customers now have access to the company's 6,600 Wells Fargo and Wachovia community bank stores and its 2,200 Wells Fargo Home Mortgage locations, eliminating the need for a separate network of Wells Fargo Financial local offices. Less than 2 percent of all Wells Fargo's real estate loans were originated in Wells Fargo Financial stores in the first quarter of 2010. The company expects the consolidation to result in increased operating efficiencies, streamlined processes and controls, and a more consistent experience for customers.

"Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years," said David Kvamme, president of Wells Fargo Financial, "but the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States."

The restructuring of Wells Fargo Financial will not impact the number of community banking or home mortgage stores currently in operation.

Customers with existing Wells Fargo Financial consumer loans and clients of Wells Fargo Financial's commercial businesses will continue to be served without disruption, the company said. FHA home loans, auto loans and credit cards previously offered by Wells Fargo Financial will be consolidated with similar products across the company and will be offered through the company's network of community banking stores, mortgage stores, phone banks and wellsfargo.com. Wells Fargo Financial's commercial businesses will be realigned with business units within Wells Fargo over the next 12 months. However, Wells Fargo will no longer originate non-prime portfolio real estate loans.

Restructuring-related, pre-tax charges of approximately $185 million will be incurred in total, with $137 million, or $0.02 per common share, recorded in second quarter 2010 for severance costs. The remaining charges are expected to be recognized in the second half of 2010, primarily in the third quarter. Once implemented, ongoing cost savings from Wells Fargo Financial's restructuring are expected to offset these charges in the first year and a half.

Of the 14,000 team members at Wells Fargo Financial, approximately 2,800 positions will be eliminated during the next 60 days, and 1,000 positions will likely be eliminated during the next 12 months. The remainder of the team members will be reassigned to other Wells Fargo businesses.

"We know that this decision will be extremely difficult for those dedicated team members and their families who will be affected," said Kvamme. "We have already identified positions for thousands of our employees and are committed to finding new positions for as many impacted team members as possible."

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