Scandal-plagued Wells Fargo could face new $1 billion fine

Wells Fargo, the iconic San Francisco-based financial services giant, already faces unprecedented government punishment for major scandals revealed in recent years. In February, in the final action by departing Fed Chair Janet Yellen, the Federal Reserve announced that the company could not increase the $1.93 trillion in total assets it had at the end of 2017 unless its record in coming months and years effectively established that it could be considered a reputable corporate citizen once again.

The unusual sanction came after internal corporate documents emerged that showed Wells Fargo’s sales agents opened up at least 3.3 million credit card, checking and savings accounts for existing customers without their permission from 2011 to 2016. That scandal was first reported by the Los Angeles Times, which eventually led to a follow-up report by The New York Times that showed Wells Fargo agents had also charged 800,000-plus customers for auto insurance they didn’t need or request, leading about 300,000 clients to become delinquent on their loans.

Wells Fargo has already paid $407 million in fines and to settle lawsuits related to these mass frauds. Now there are reports that two federal regulatory agencies – the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency – are looking to sock the venerable bank with an additional $1 billion in civil penalties. The penalties would be for the auto insurance scandal as well as previously undisclosed fraud in Wells Fargo’s mortgage-writing business in which customers were once again charged excessive fees, according to the Washington Post.

The interlocking scandals all stem from what the Los Angeles Times’ initial scoop depicted as a pressure-cooker environment in sales offices where agents had to fill quotas for opening new accounts. This led to a corporate culture in which many agents came to see customers as profit centers.

Years of bad publicity not hurting bank’s bottom line

Wells Fargo CEO Tim Sloan – promoted in 2016 after the scandals led to thousands of firings and resignations – told analysts in a recent conference call that he was confident his company was on the right track even if it faced an additional $1 billion in penalties. However, Sloan appeared concerned that still more embarrassing revelations might be forthcoming – saying that “in terms of declaring victory and walking ahead, we’re not quite there yet.”

But despite the breadth of the scandals – and the massive bad publicity they generated – Wells Fargo’s bottom line hasn’t appeared to suffer. On Friday, the company reported that profits for the first quarter of 2018 were $5.9 billion – up from $5.6 billion in the same period of 2017. Bank officials cited the lower corporate tax rates approved by Congress and signed by President Donald Trump in December.

While Wells Fargo’s stock priced closed Monday at $50.89 a share – near its 52-week low – it remains more than 120 percent higher than in the summer of 2010, about the same increase as the Dow Jones Industrial Average over the same time span.

Meanwhile, the Seeking Alpha investment website reported this week that America’s most famous investor – Warren Buffett of Berkshire Hathaway – was highly bullish on the company.

As of Dec. 31, Berkshire Hathaway owned $23.3 billion of Wells Fargo stock. “It is easy to see why Buffett would invest in Wells Fargo. Buffett typically looks for high-quality businesses with sustainable competitive advantages, trading at discounts to their long-term intrinsic value. Wells Fargo appears to be undervalued, with a strong brand and compelling dividend,” wrote Seeking Alpha analyst Bob Ciura. “The stock remains attractive for value and income investors.”

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  1. Ulysses Uhaul
    Ulysses Uhaul 17 April, 2018, 12:57

    Nowhere in California to hide……pack and ship….

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Chris Reed

Chris Reed

Chris Reed is a regular contributor to Cal Watchdog. Reed is an editorial writer for U-T San Diego. Before joining the U-T in July 2005, he was the opinion-page columns editor and wrote the featured weekly Unspin column for The Orange County Register. Reed was on the national board of the Association of Opinion Page Editors from 2003-2005. From 2000 to 2005, Reed made more than 100 appearances as a featured news analyst on Los Angeles-area National Public Radio affiliate KPCC-FM. From 1990 to 1998, Reed was an editor, metro columnist and film critic at the Inland Valley Daily Bulletin in Ontario. Reed has a political science degree from the University of Hawaii (Hilo campus), where he edited the student newspaper, the Vulcan News, his senior year. He is on Twitter: @chrisreed99.

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