Wells Fargo (NYSE:WFC) is giving serious thought to moving several jobs to Asia in a bid to see the cost cutting plan it announced late last year through.  Reports suggest that the largest U.S. bank in terms of market cap may shift various technology-based roles as well as its retirement division, besides several other business units, to India and the Philippines. Wells Fargo is looking to trim recurring quarterly expenses by between $1.7 billion to $2 billion by the end of the year. Hence the bank employing captive centers in low-cost Asian economies comes as no surprise. Many competitors, including Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and UBS (NYSE:UBS) to name a few, follow a similar strategy of providing various back-office, customer-service related and technology function roles out of Asia.
We maintain a $35 price estimate for Wells Fargo’s stock, which is about 10% above the current market price.
Wells Fargo set itself the target of restricting company-wide expenses to $11 billion a quarter in late 2011 – something the bank expected to achieve by streamlining its operations. With expenses rising to $13 billion for the first quarter of 2012, Wells Fargo is being forced to take a hard look at its business model and see how best it can achieve the target.
Wells Fargo’s operations are almost entirely focused on the U.S., which is why about 98% of its almost 265,000-strong employee base is present in the country. Of the remaining two percent, the bank has about 3,000 people working in India and another 240 in the Philippines. While its centers in India currently provide technology as well as middle- and back-office functions for its various business units, employees based in the Philippines handle customer service roles.
Wells Fargo still has a large number of roles that it can potentially shift to Asia. Such a move allows for substantial cost savings for the bank, while ensuring that the services it provides customers remain unaffected. In fact, Wells Fargo is considering shifting some jobs from more expensive locations to cheaper ones within the U.S. too.
In recent years, Wells Fargo has demonstrated its ability to generate revenues even under tough economic conditions. The next challenge it faces is to maintain its healthy revenue growth while trimming expenses. If the bank is able to do so successfully, improving margins would help the bank provide its shareholders with the best returns in the banking industry. You can make changes to the chart above to see how a decrease in Wells Fargo’s non-interest expenses can add to its overall value.Notes:
- Wells Fargo May Send Some Jobs To India, Philippines, Bloomberg, Jun 20 2012 [↩]