Coverage: Wells Fargo is fined $1 billion

Federal regulators slapped Wells Fargo & Co. with a penalty of $1 billion on Friday, punishing the San Francisco bank for abuses that harmed mortgage and auto loan borrowers.

James Rufus Koren of the Los Angeles Times had the news:

The penalty, announced by the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, is the largest levied against a financial firm since President Trump took office. Trump had tweeted in December that penalties against the bank could be “substantially increased.”

It’s also one of the largest fines levied against any U.S. bank not related to the financial crisis and the first for the CFPB since Trump appointee Mick Mulvaney took over as its interim director last year. In the months since, Mulvaney has been criticized by consumer advocates for trying to diminish the agency’s powers.

The new fines dwarf the $185 million Wells Fargo agreed to pay to federal regulators and the Los Angeles city attorney’s office in 2016 over the creation of accounts without customers’ authorization.

The scandal over unauthorized accounts, a practice rooted in the bank’s onerous sales goals and first reported by The Times in 2013, led to increased regulatory scrutiny at Wells Fargo by local, state and federal authorities and to wide-ranging internal reviews of bank practices.

Stephen Gandel of Bloomberg Gadfly reports that Wells Fargo may not be done paying for its misdeeds:

Wells Fargo, from 2012 to 2016, made $3.1 billion from auto lending. Its consumer bank in the same time made over $60 billion, and overall the bank netted $100 billion. You can make the case that at least some portion of those profits came from the fact that what Wells Fargo was spending on oversight wasn’t what it should have been. So fines to profits, rather than just what customers were overcharged, is likely the right comparison, and on that scale what Wells Fargo is paying isn’t that large. After all, the Consumer Financial Protection Bureau is fining Wells Fargo not just for the abusive practices (which is says have stopped), but also for the lack of oversight of its business.

And that’s the problem. It’s not clear that the oversight issue has been fixed. This past February, the Federal Reserve sanctioned Wells Fargo for not having the correct risk management controls in place. The CFPB isn’t convinced either. The settlement agreement includes a large action plan so the bank can prove to regulators that it has the right compliance system in place to make sure the bank’s incentive structures don’t spin it out of control in the future. That’s going to take money, and there has been little evidence that Wells Fargo has dramatically increased what it spends on its risk management, even in the wake of these many scandals.

There’s this, too: While Tim Sloan has repeatedly said Well’s Fargo’s problems are in the past, it’s not clear management actually believes that. According to the bank’s most recent financial statement, it still expects future legal fees and fines could result in billions more in charges.

Investors have been looking for Well Fargo to cut costs.  In fact, the bank has pledged it will. That may please shareholders, but likely not regulators. And right now pleasing regulators may be the best way the bank can eventually please investors.

Bruce Weinstein of Forbes writes about how Wells Fargo can avoid such a large fine in the future:

Suppose your wealth manager was highly advanced in every one of the above categories but was also dishonest, didn’t keep his or her promises and cared more about promoting his or her interests above yours. You would run the other way, as well you should.

Wells Fargo suggests as much in their own values statement: “We’re committed to the highest standards of integrity, transparency, and principled performance. We do the right thing, in the right way, and hold ourselves accountable.”

Why is this core value nowhere to be seen in their job description for Wealth Management Broker? Or for that matter in any of its other job descriptions at every level of the organization?

Chances are your own company also has a huge gap between what it says it values and the kinds of people it seeks to hire.

Close the gap. Rewrite every single job description so that it is crystal clear that you hire for character as well as competence.