Matt Egan


New York (CNN Business)Wells Fargo has gone from one of America’s strongest big banks to easily the weakest.

For years, Wells Fargo’s laundry list of scandals and legal problems had only a fleeting impact on its once-monstrous bottom line. That is no longer the case.

Wells Fargo (WFC) is the only major lender during the pandemic to lose money — its first loss since the 2008 financial crisis. And that red ink was driven in large part by the crushing penalties imposed two years ago by the Federal Reserve for abusing customers.

Wells Fargo is such a mess that it’s being forced to slash its coveted dividend. During the Great Recession, Wells Fargo was so strong that it was among the last of the banks to touch its dividend. Today, it’s the first.

All banks (except maybe Goldman Sachs) are suffering because of the pandemic, which has caused mass unemployment, surging bankruptcies and a collapse in GDP.

But the fact that Wells Fargo is hurting so much more than its peers is its own fault. Just ask Charlie Scharf, the man hired last year to get the bank back on track.

“We are responsible for the position we’re in,” the Wells Fargo CEO told analysts Wednesday after detailing what he called “clearly a very poor quarter for us.”

Wall Street agrees with that assessment. Wells Fargo’s share price has collapsed by a staggering 54% this year, far worse than the 35% drop for the KBW Bank Index (BKX). Rivals including JPMorgan Chase (JPM) and Bank of America (BAC) are down around 30%.

Wells Fargo is still in the penalty box with the Fed

Wells Fargo is getting squeezed by the $2 trillion asset cap imposed by the Fed. Those unprecedented sanctions prevent Wells Fargo from growing its balance sheet — at a time when growth is absolutely necessary because interest rates are at rock bottom.

Banks make money off the spread between interest charged on loans and what is paid out on deposits. Right now, that spread is very narrow, making it challenging to make money. One way to outrun low rates is to simply lend more, as JPMorgan Chase and Citigroup (C) are doing.

But Wells Fargo can’t because of the asset cap. That’s why its net interest income, a key metric of profitability for banks, tumbled 13% quarter-over-quarter. JPMorgan’s, on the other hand, dipped only 4%.

Scharf acknowledged these “constraints” have limited the bank’s ability to offset the pain of low rates. But he didn’t blame the Fed, which has refused to lift the sanctions until Wells Fargo cleans itself up.

“The balance sheet cap exists because leadership failed to both oversee and build the appropriate infrastructure of the company,” Scharf said. “Our financial underperformance is because leadership didn’t make the difficult decisions necessary.”

Wells Fargo has focused on these issues by revamping its corporate risk operation, including by hiring external executives.

Still settling disputes with customers

But it’s not just about the asset cap.

Wells Fargo’s operating losses jumped by $755 million during the second quarter because of “increased customer remediation accruals for a variety of matters and higher litigation accruals.”

In other words, the bank is still paying the price for its history of scandals in the form of customer refunds and legal settlements.

It’s not entirely clear which of Wells Fargo’s many controversies these costs relate to.

Wells Fargo admitted its workers opened millions of fake bank and credit card accounts to meet wildly unrealistic sales goals. The bank has also said it forced thousands of borrowers to pay for auto insurance they didn’t need. Some of them even had their vehicles wrongfully repossessed. And it imposed unwarranted fees on potential homebuyers to lock in mortgage rates.

On top of that, Wells Fargo has been accused of mistreating workers by retaliating against whistleblowers and forcing employees to work overtime without extra pay.

Asked by CNN Business what the “remediation” refers to, John Shrewsberry, Wells Fargo’s chief financial officer, said during a conference call with reporters that it’s not directly related to the millions of fake accounts that were opened.

“It’s a range of things that have been part of our public disclosures the past few years,” he said.

Shrewsberry said that Wells Fargo’s new management has done a review of outstanding matters and is taking a “more generous view” in favor of customers to “reach a conclusion more quickly.”

It’s striking that nearly four years after Wells Fargo’s scandals erupted, it’s still trying to resolve disputes with customers.

“I do think the worst is over,” Shrewsberry said. “It should be the end of it from my perspective.”

Wells Fargo’s deep dividend cut

But the pain isn’t over for employees and shareholders.

Wells Fargo expects to slash its dividend by 80% — far more than analysts had anticipated.

“We’re extremely disappointed to take this action and do understand that many rely on this stream of income,” Scharf said during the call.

Some fear Wells Fargo’s earnings have eroded so sharply that it will need to take further action. The Fed is requiring banks to limit payouts to a four-quarter average of their net income.

Brian Kleinhanzl, analyst at KBW, warned clients in a note Tuesday that Wells Fargo’s dividend could shrink further because “there is not much breathing room.”

KBW trimmed its earnings estimates on Wells Fargo, not just for this year but for 2021 and 2022, too. And it warned of “further downside risk” if the asset cap isn’t lifted by this time next year. Fed chair Jerome Powell has been highly critical of Wells Fargo.

“The near-term fundamental outlook remains more challenged” for Wells Fargo than its peers, Kleinhanzl wrote.

Here come the job cuts

Not surprisingly, Wells Fargo’s struggles could force some serious belt tightening.

“We’ve been extremely inefficient for too long,” Scharf said.

The Wells Fargo boss said the multiyear cost-cutting effort will begin soon, with a goal of making the bank as efficient as its peers by slashing around $10 billion of expenses.

Part of that will be done by shutting down branches. Wells Fargo listed 5,300 retail branches at the end of the second quarter, down from a peak of 6,300 years ago, and that figure could eventually drop to 4,000.

But Shrewsberry, the Wells Fargo CFO, said branches and front-line branch workers are not going to play a “huge part” in the cost cutting because they are not the most expensive pieces of the company.

Still, he acknowledged job cuts are coming.

“A big piece of it will ultimately be people because such a large part of our expense structure is personnel,” Shrewsberry said.

That means Wells Fargo’s financial problems will ultimately punish employees.

Author: Matt Egan

Source: CNN: Wells Fargo is a hot mess. It has only itself to blame

A secretive startup backed by Bill Gates has achieved a solar breakthrough aimed at saving the planet.

Heliogen, a clean energy company that emerged from stealth mode on Tuesday, said it has discovered a way to use artificial intelligence and a field of mirrors to reflect so much sunlight that it generates extreme heat above 1,000 degrees Celsius.

This is an existential issue for your children, for my children and our grandchildren.”

Essentially, Heliogen created a solar oven — one capable of reaching temperatures that are roughly a quarter of what you’d find on the surface of the sun.

The breakthrough means that, for the first time, concentrated solar energy can be used to create the extreme heat required to make cement, steel, glass and other industrial processes. In other words, carbon-free sunlight can replace fossil fuels in a heavy carbon-emitting corner of the economy that has been untouched by the clean energy revolution.

“We are rolling out technology that can beat the price of fossil fuels and also not make the CO2 emissions,” Bill Gross, Heliogen’s founder and CEO, told CNN Business. “And that’s really the holy grail.”

Heliogen, which is also backed by billionaire Los Angeles Times owner Patrick Soon-Shiong, believes the patented technology will be able to dramatically reduce greenhouse gas emissions from industry. Cement, for example, accounts for 7% of global CO2 emissions, according to the International Energy Agency.

“Bill and the team have truly now harnessed the sun,” Soon-Shiong, who also sits on the Heliogen board, told CNN Business. “The potential to humankind is enormous. … The potential to business is unfathomable.”

Heliogen, backed by Bill Gates, has achieved a breakthrough that could allow cement makers to transition away from fossil fuels. The company uses artifical intelligence and an array of mirrors to create vast amounts of heat, essentially harnessing the power of the sun.

Heliogen, backed by Bill Gates, has achieved a breakthrough that could allow cement makers to transition away from fossil fuels. The company uses artifical intelligence and an array of mirrors to create vast amounts of heat, essentially harnessing the power of the sun.

Unlike traditional solar power, which uses rooftop panels to capture the energy from the sun, Heliogen is improving on what’s known as concentrated solar power. This technology, which uses mirrors to reflect the sun to a single point, is not new.

Concentrated solar has been used in the past to produce electricity and, in some limited fashion, to create heat for industry. It’s even used in Oman to provide the power needed to drill for oil.

The problem is that in the past concentrated solar couldn’t get temperatures hot enough to make cement and steel.
“You’ve ended up with technologies that can’t really deliver super-heated systems,” said Olav Junttila, a partner at Greentech Capital Advisors, a clean energy investment bank that has advised concentrated solar companies in the past.

Using artificial intelligence to solve the climate crisis

That means renewable energy has not yet disrupted industrial processes such as cement and steelmaking. And that’s a problem because the world has an insatiable appetite for those materials. Cement, for instance, is used to make the concrete required to build homes, hospitals and schools. These industries are responsible for more than a fifth of global emissions, according to the EPA.

That’s why the potential of Los Angeles-based Heliogen attracted investment from Gates, the Microsoft (MSFT) co-founder who recently surpassed Amazon (AMZN) CEO Jeff Bezos as the world’s richest person.

“I’m pleased to have been an early backer of Bill Gross’s novel solar concentration technology,” Gates said in a statement. “Its capacity to achieve the high temperatures required for these processes is a promising development in the quest to one day replace fossil fuel.”

Heliogen, founded by Bill Gross, must convince industrial companies it's worth the investment to switch over to its solar technology.Heliogen, founded by Bill Gross, must convince industrial companies it’s worth the investment to switch over to its solar technology.While other concentrated solar companies attacked this temperature problem by adding steel to make the technology stiffer and sturdier, Heliogen and its team of scientists and engineers turned to artificial intelligence.

Heliogen uses computer vision software, automatic edge detection and other sophisticated technology to train a field of mirrors to reflect solar beams to one single spot.

“If you take a thousand mirrors and have them align exactly to a single point, you can achieve extremely, extremely high temperatures,” Gross said, who added that Heliogen made its breakthrough on the first day it turned its plant on.

Heliogen said it is generating so much heat that its technology could eventually be used to create clean hydrogen at scale. That carbon-free hydrogen could then be turned into a fuel for trucks and airplanes.

“If you can make hydrogen that’s green, that’s a gamechanger,” said Gross. “Long term, we want to be the green hydrogen company.”


For now, Heliogen is squarely focused on solar. One problem with solar is that the sun doesn’t always shine, yet industrial companies like cement makers have a constant need for heat. Heliogen said it would solve that issue by relying on storage systems that can hold the solar energy for rainy days.

Now that it has made this breakthrough, Heliogen will focus on demonstrating how the technology can be used in a large-scale application, such as making cement.

“We’re in a race. We just want to scale as fast as possible,” said Gross.

After the large-scale application, Soon-Shiong said Heliogen would likely be ready to go public.

In the meantime, Heliogen will require a healthy dose of capital to scale and it’s working with investors on a private round of funding. Soon-Shiong signaled he plans to invest more in Heliogen. Heliogen declined to provide information on how much money it has raised so far.

“This is an existential issue for your children, for my children and our grandchildren,” Soon-Shiong said.
Heliogen’s biggest challenge will be convincing industrial companies using fossil fuels to make the investment required to switch over. Gross said the company has been talking to potential customers privately and plans to soon announce its first customers.

“If we go to a cement company and say we’ll give you green heat, no CO2, but we’ll also save you money, then it becomes a no-brainer,” said Gross.

Its biggest selling point is the fact that, unlike fossil fuels like coal, oil and natural gas, sunlight is free. And Heliogen argues its technology is already economical against fossil fuels because of its reliance on AI.

“The only way to compete is to be extremely clever in how you use your materials. And by using software, we’re able to do that,” Gross said.

Author: Matt Egan

Source: Edition. CNN: Secretive energy startup backed by Bill Gates achieves solar breakthrough

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