Assessing Wells Fargo’s Progress on Its Cost-Cutting Initiatives

In a volatile financial environment, banks have been forced to realign their cost structures in order to remain profitable, contain rising costs, and offset the impact of low interest rates. Since the 2008 financial crisis, Wells Fargo (WFC) has been working to control expenses.

In 4Q16, Wells Fargo’s operating expenses were 1% lower at $13.2 billion, and its efficiency ratio was 61.2%. Peers (XLF) Bank of America (BAC) and JPMorgan Chase (JPM) reported efficiency ratios of 65.1% and 59.0%, respectively.

During 4Q16, Wells Fargo incurred higher professional services and legal expenses, resulting from the legal investigations it faces related to 2016’s fake account scandal.

In an effort to trim expenses, Wells Fargo plans to close 200 branches in 2017 and 2018. In 2016, WFC shut down 84 branches.

The efficiency ratio is a measure of operating expenses as a percent of net revenues, showing how revenues can fuel a bank’s operating expenses. A lower percentage is preferred, as it reflects lower expenses compared to revenues.