The embattled bank has massively increased its spending on buying back its own stock – pumping up the per-share price and directly benefiting execs – even as it plans to cut thousands of jobs
Despite operating under a constant cloud of scandal for more than two tears, cutting thousands of jobs and closing hundreds of branches, Wells Fargo has spent tens of billions on aggressive stock buybacks.
The embattled bank spent $7.4 billion to buy back its own stock in the third quarter – nearly three times what it spent the year before, according to a CNN report.
Since the bank’s fake-account scandal went public in September 2016, it’s spent an average of $3.2 billion on buybacks each quarter – 45% more than what it spent during the previous eight quarters.
Stock buybacks are a way to create demand for stock, according to CNN. By removing shares from the market in a buyback, a company can artificially boost its earnings per share. Wells Fargo’s stock has tumbled 24% in the past year – but without the buybacks, it would probably be faring even worse.
“They can’t get new investors to buy the stock, so they’ll just get their own shareholders to do it,” David Santschi, director of liquidity research at TrimTabs Investment Research, told CNN. “They want to offset some of the loss of interest from the scandals.”
Wells Fargo is expected to reveal another round of buybacks when it posts its quarterly results today. And those buybacks are continuing even as the bank slashes jobs by the thousand. In September, Wells Fargo announced that it would cut up to 26,500 jobs over the next three years.
“Instead of investing in frontline workers, they’re more concerned about shareholders and executive pay,” Nick Weiner, organizing coordinator for the Committee for Better Banks, told CNN. “They’re using their resources more to prop up their stock price, which you could argue is a conflict.”
Weiner and other critics argue that the buybacks are a conflict of interest because top executives are paid mostly in stock, according to CNN. That means that huge stock buybacks, which pump up share prices, directly benefit the bank’s senior management. In 2017, 86% of Wells Fargo CEO Tim Sloan’s $17.4 million compensation package was in company stock, CNN reported.
Wells Fargo employees, meanwhile, make a minimum hourly wage of $15.