Storm awaiting Wells

Wells Fargo on Wednesday, July 8, 2010, announced plans to restructure its financial division and close 638 Wells Fargo Financial stores across the nation. Consequently, approximately 3,800 positions over the course of the next 12 months will be eliminated. According to Wells, these financial stores are not competitive with banking and mortgage network. Economically speaking, the restructuring will cost Wells Fargo approximately $185 million, $137 million of which will be recorded in the second quarter of 2010.

Wells Fargo, the third largest bank in the United States, has to do something to rein their size so that they can keep up with expectation. Services from Wells seem out of pace as they absorbed Wachovia. One customer shared his experience in their investment branch: he tried to talk to the manager about changing a yesterday's trade cost basis. The arrogant manager, after self-claimed he is highest rank on the decision, abruptly said, "no, I don't want to do that. You've caused too much trouble for me". The client immediately shifted his fund to another firm. Never heard of such experience before.

Indeed, Wells needs some fixing. Here is another story about their mortgage business, widely reported in media.

Wells was faced a foreclosure of Levitt & Sons LLC on seven stalled housing development in Georgia, Florida and South Carolina. Due to the dire housing condition, the builder claimed bankruptcy in 2007 and discontinued operation. Now it is under the process of liquidating. In order to save the $122M loans Wells had put in, they pursued an unusual route: Wells agreed to fund another $3M revolving line of credit to help finish building such amenities as clubhouses and sell some completed homes. They bet the 1,800 acres property in various stages of completion, would unlock more value and attract more buyers if the property is maintained and close to generating revenue. The result is Wells recouped roughly $65M, including individual homes, after deducting the costs for operations such as construction.

What to tell from the news in combined with the restructure and their services? Wells has more to do to clean up the bloating team. There must be many dark corners deemed to be enlightened. Some had questioned their ability to integrate Wachovia, besides infrastructure. Now it seems the easy part is gone and the hard part is coming.