Wells Fargo has agreed to pay $3bn in criminal and civil penalties for fraudulently opening millions of customer accounts in a scandal that federal authorities said reflected a “complete failure of leadership” at the US bank.
Wells, the fourth biggest bank in the US by assets, has been fighting its way back from scandal since 2016, when it emerged that its much-touted “cross-selling” prowess was built on unauthorised accounts opened with falsified records and forged customer signatures.
The $3bn settlement with the Department of Justice and Securities and Exchange Commission is a significant step forward for the bank, which is under new management. But it does not cover issues in its mortgage lending and auto loans businesses that have come to light more recently.
“This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” said Nick Hanna, the US attorney for the central district of California, in a statement.
A senior justice department official said the resolution did not preclude future action against individuals but declined to comment on “any ongoing matters that may be still under investigation”.
Wells Fargo has already paid over $2bn to federal banking regulators, state authorities and class action claimants in connection with its sales practices. The bank is also operating under a cap on the size of its balance sheet imposed by the Federal Reserve in 2018.
The new settlement with Wells Fargo & Company and its subsidiary, Wells Fargo Bank, will not have any impact on the group’s profits since it is covered by the $3bn the bank set aside to deal with litigation in the second half of last year.
As part of the deal, Wells Fargo admitted that it pressured employees to meet unrealistic sales goals between 2002 and 2016, and that “top managers” in its community bank were aware of “unlawful and unethical” sales practices.
In 2004 and 2005, internal investigators described the issues as a “growing plague” that was “spiralling out of control”, according to Wells Fargo’s admissions.
Bank employees forged signatures, moved customer money into unauthorised accounts, and altered contact information in order to open accounts without the knowledge of customers and then stopped them from finding out, Wells Fargo admitted.
The bank also admitted that senior leadership in its community bank “viewed negative sales quality and integrity as a necessary byproduct of the increased sales and as merely the cost of doing business,” the justice department said in a press release.
The DoJ’s release said the community bank’s leadership had “minimised the problems to Wells Fargo management and its board of directors”.
The bank has changed its chief executive twice since the scandal broke, most recently installing former JPMorgan Chase retail boss Charlie Scharf, who vowed to clean up the bank’s legacy and focus on the future when he took over in October.
“The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built,” Mr Scharf said in a statement.
“While today’s announcement is a significant step in bringing this chapter to a close, there’s still more work we must do to rebuild the trust we lost.”
John Stumpf, who was chief executive when the fake accounts scandal emerged, last month agreed to pay a $17.5m civil fine over the scandal and was banned by the Office of the Comptroller of the Currency from any future role at a US bank. At the same time, the OCC announced settlements with and charges against seven other former Wells Fargo executives with possible civil monetary penalties totalling almost $60m.
Wells Fargo has previously been fined more than $1bn by the OCC and the Consumer Financial Protection Bureau for unfair sales practices in its mortgage lending and auto loans businesses, as well as fake account openings.
The bank also paid $575m to settle state investigations and $480m in a class-action lawsuit brought by investors. The senior justice department official said the previous penalties paid by Wells Fargo had been taken into account when determining the size of the $3bn settlement.
The majority of the sum was levied under the DoJ’s criminal and civil actions, with $500m to the SEC, which will return the money to investors. Wells Fargo entered into a three-year criminal deferred prosecution agreement with the DoJ as part of the agreement.
The SEC said the bank had misled investors between 2012 and 2016 about its retail operations by touting the number of products per household it sold as proof of the success of its “cross-sell” strategy.
Stephanie Avakian, co-director of enforcement at the SEC, said Wells Fargo “repeatedly misled investors . . . about what it claimed to be the cornerstone of its community bank business model”.
Reputational damage and the legal provisions have weighed heavily on the bank’s earnings in recent years, and it has consistently underperformed peers JPMorgan Chase, Bank of America and Citigroup.
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