UPDATE: Aug. 6, 2020:  Wells Fargo wants to slash its spending on consultants — a move that could account for $1 billion to $1.5 billion per year in a plan to cut $10 billion from annual expenses.

“The things that we rely on outside people to do is beyond anything that I've ever seen,” CEO Charlie Scharf said, calling the price tag “extraordinary,” according to the Financial Times. 

Most of those expenses are couched under “other professional services,” for which the bank paid $758 million in the second quarter.

The bank originally hired consultancy McKinsey and an external law firm to oversee its compliance with several consent orders. Scharf said January the bank had 12 enforcement actions against it.

Wells Fargo has since added PricewaterhouseCoopers, the Financial Times reported. The bank also contracted Oliver Wyman in a reorganization of its chief risk office and hired Accenture for “business process mapping.” Wells Fargo also works with Deloitte and EY.

“Spending on consultants is off the charts,” a person familiar with the matter told the Financial Times. “You lose track of all of them really. It is comical.”

UPDATE: July 15, 2020:  Wells Fargo CEO Charlie Scharf said Tuesday he will start cutting expenses in the second half of this year, with a target to slash at least $10 billion in costs, or one-sixth of last year's total. Scharf did not attach a time frame for the completion of that goal.

“This cannot continue,” he said on a conference call with analysts, according to Bloomberg. “There’s no reason why, as a management team, we don’t have the ability to be as efficient as the rest.”

Scharf said the company has too many management layers, on top of resources dedicated to nonpriority activities.

The bank is said to be drafting plans that could cut tens of thousands of jobs starting this year, though executives reportedly haven't decided on a specific number.

Dive Brief:

• Wells Fargo took a $2.4 billion loss in the second quarter, according to an earnings statement the bank released Tuesday. That compares with a $6.2 billion profit a year earlier. It marks the bank's first quarterly loss since the end of 2008, and the third such loss since 2000, according to The Wall Street Journal.
• The bank will cut its dividend to 10 cents per share from 51 cents, it said. The San Francisco-based lender said late last month that it would slash the payout in response to stress test results released by the Federal Reserve, but didn't say to what level.
• Wells Fargo set aside $9.5 billion for credit losses — about $4 billion above expectation, Bloomberg reported. That’s more than double the $4 billion the bank set aside during the first quarter in loan loss provisions.

Dive Insight:

"Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter," CEO Charlie Scharf said Tuesday in a statement accompanying the earnings.

Several measures of profitability saw significant decreases. Revenue was down 17% to $17.8 billion, compared with $21.6 billion a year earlier. Net interest income fell to $9.9 billion, an 18% drop from a year ago.

The bank paid out $1.2 billion in customer remediation, presumably tied to the after-effects of scandals. The bank had 12 enforcement actions against it at the beginning of the year. Scharf reiterated Tuesday the bank's regulatory commitments remain a "top priority."

Noninterest income, however, grew $1.6 billion from the first quarter, to $8 billion.

"Loans declined as commercial customers paid down loans that were drawn late in the first quarter during the market turbulence at the outset of the pandemic, while consumer deposit balances increased reflecting unprecedented government stimulus programs, lower spending, and customers’ preferences for liquidity," Wells Fargo CFO John Shrewsberry said Tuesday, adding that the pandemic drove personnel, occupancy and tech expenses to increase to $382 million.

Scharf also addressed the drop in dividend payouts. "It is critical in these uncertain times that our common stock dividend reflects current earnings capacity assuming a continued difficult operating environment, evolving regulatory guidance, and protects our capital position if economic conditions were to further deteriorate," he said. "Given this, we believe it is prudent to be extremely cautious until we see a clear path to broad economic improvement."