In mid January, Wells Fargo the biggest bank in California reported its 4th quarter earnings. The cloud over the generally profitable bank is legal expenses and expected pay outs over the mortgages and sales practices. For a number of years, the President of the Bank believed customer should own at least 10 products, even if they did not need them. Many people were given the products, very few were asked if they wanted or needed the services. The result is the bank’s expense ratio topped 60 cents on the dollar and needed to be reduced.

The bank is trying to slash $4 billion in costs or striving for efficiencies. The Efficiency ratio as reported by Reuters is revenue divided by expenses was 76 cents on the dollar. Wells Fargo has a target of 55 to 59 cents.

Wells Fargo is primarily a US lender and will not benefit from the tax cut on bringing back revenues to the US, they will benefit from the cut in corporate rate.

Linking to dividend paying stocks, if Wells Fargo can lower its expense ratios, then the stock should perform closer to the average of its group. For many years it was above average performer and the new tax cut will give it a boost.

There are more questions than answers, till the next time – to raising questions.