Wells Fargo & Co. will shut down a unit that makes what the San Francisco bank calls "non-prime" real estate, eliminating a total of 3,800 jobs and 638 Wells Fargo Financial stores. "Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years," said David Kvamme, president of Wells Fargo Financial, "but the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States."The company said less than 2% of its real-estate loans were originated in Wells Fargo Financial stores in the first quarter. About 2,800 jobs, 20% of the unit's work force, will be cut in the next 60 days, followed by an additional 1,000 in the next year. Remaining workers will be assigned to other Wells Fargo businesses, according to the company. The move is expected by Wells Fargo to result in restructuring charges of about $185 million on a pretax basis, including severance costs of $137 million, or two cents a share, in the second quarter. The remaining charges will occur in the second half of 2010, primarily in the third quarter. Wells Fargo said cost savings from the restructuring "are expected to offset these charges in the first year and a half."
One of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. But when the main goal of a company is to maintain employment make a profit and maximize returns to shareholders they can sometimes come into conflict. In this case with Wells Fargo, they are putting off nearly 4,000 employees, decreasing the value of shares, and wasting 100's of millions of dollars restructuring and severance costs. The believe that in the next year and a half that they will offset the balance but is it really worth it? In the economy we are in, ethical risks this huge cannot be taken.
While I think you make a good point, the current status of the recovering financial system makes it difficult for banks to retain their employees. Also, the recent global banking agreement made in Basel, Switzerland will also hurt banks even more in the future. With higher reserve requirements, banks are going to have to find ways to cut costs and boost revenue. I think this situation is unavoidable, and Wells Fargo has no choice but to lay off some of its workers. Maybe there are other solutions to Wells Fargo's financial pains. Does anyone have any ideas of a more ethical solution?
ReplyDeleteHow can companies balance its responsibility to its stockholders (to increase profit) and its responsibilities to those affected by the company's choice?
ReplyDeleteAlso, don't forget to cite your sources.