Analysis-Wells Fargo’s long road to repair stretches with prospect of more sanctions
By Pete Schroeder and Elizabeth Dilts Marshall
WASHINGTON / NEW YORK (Reuters) – It’s been almost five years since Wells Fargo & Co began tackling widespread customer abuse that has resulted in regulatory penalties, lawsuits, reputational damage, business overhauls and management changes, but America’s fourth largest bank still seems to have a lot of work to do, analysts say.
Wells Fargo has a major credit card processing facility in Sioux Falls.
Regulators at two key agencies – the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) – are considering additional sanctions against Wells Fargo because it has been too slow to compensate victims and remedy the underlying weaknesses of business practices. Bloomberg reported on Tuesday.
The bank also remains subject to an unprecedented asset cap imposed by the Federal Reserve, as well as around a dozen consent orders with regulators, all resulting from a selling scandal that erupted publicly in September 2016. .
Spokesmen for the OCC, CFPB, Fed and Wells Fargo declined to comment.
Managing Director Charlie Scharf is committed to putting Wells Fargo on the right track and resolving regulatory issues as quickly as possible. But after the announcement of potential new sanctions, analysts predicted it could take years to meet those targets.
“Wells Fargo didn’t find itself in this situation overnight and they sure won’t get away with it overnight,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
Wells Fargo shares were down 4.6% on Wednesday afternoon, after falling sharply on Tuesday.
The bank’s problems stem from a pervasive culture under the previous leadership, where meeting sales targets was the most important element in employee success. As a result, the bank ended up enrolling customers in millions of fake accounts and many other products, sometimes charging unnecessary fees or damaging their credit rating.
Wells Fargo’s management team and board of directors have changed dramatically since then, implementing new incentive structures and a risk management protocol across the bank. Scharf became CEO in October 2019, the fourth person to lead Wells Fargo since the scandal began.
Scharf has repeatedly stressed the urgency of resolving regulatory issues, fixing internal risks and control structures, and restoring Wells Fargo’s reputation with customers, investors and other stakeholders. The tagline for his company bio is, “We’re going to do it. “
However, Scharf resisted the offer of a specific timeline, saying the issues run deep within the bank and regulators will ultimately decide when and if they are resolved.
“The number of remediation and customer control issues that existed when I arrived were many multiples of what should exist in our business,” he told analysts on a conference call in July.
The bank reported difficulties meeting regulators in its quarterly filing in May, and Scharf said he “didn’t even think about what life is like without the asset cap.”
The asset cap, $ 1.95 trillion, is important because it limits Wells Fargo’s ability to lend and invest, and therefore its ability to generate profits. Wells Fargo had total assets of $ 1,945 billion as of June 30.
Analysts have struggled to predict how long it will take Wells to fully overcome the sales scandal.
Boltansky was encouraged that unresolved issues still seem to stem from past practice, rather than new abuses that have come to light. On the flip side, the Biden administration has positioned itself to become stricter on policies for large U.S. corporations, including banks, and it’s unclear how the White House will handle upcoming appointments to regulators, including including the Fed.
Few analysts expect Wells to be able to resolve the asset cap or consent orders anytime soon.
“This process has taken years longer than regulators and Wells Fargo originally anticipated,” wrote Vivek Juneja, analyst at JPMorgan Chase & Co, in a note to investors. “The bank was initially expected to complete steps 1 to 4 by September 2018.”
(Reporting by Pete Schroeder and Elizabeth Dilts Marshall; additional reporting by Noor Zainab Hussain; Editing by Steve Orlofsky; Editing by Lauren Tara LaCapra)