Question

In the last couple of years Wells Fargo, one of the largest banks in the U.S., has been accused of bank scandals.
A. What are the three (3) most serious scandalous activities?

B. What were some of the consequences/costs of these activities?

C. How was Wells Fargo prepared to deal with these problems? (to avoid significant impact on its financial performance, for example?)

D. What is your own opinion about these scandals and the responses to them?

Answer 1

A) Three most serious scandalous activities Bank has been involved in are as under

i) September 2016: The fake account scandal

ii) April 2018 : Mortgage Locks and auto Loan Issue

iii) August 2018: Role in housing bubble. It improperly represented mortgages it sold to investors during the housing bubble

iv) August 2018: Hundreds of houses foreclosed on due to computer glitch

B) Some of the consequences/costs of these activities are as follows

i) The bank fired approximately 5300 employees between 2011 and 2016 as a result of fraudulent sales

ii) Discontinued sales quotas at its individual branches after the fake account scandal

iii) In the aftermath of the scandal, then-CEO John Stumpf was fired and had $41 million in compensation clawed back.

iv) In September 2016, Consumer Financial Protection Bureau announced that the bank would be fined $185 million for the illegal activity (fake account scandal)

v) Wells Fargo, the CFPB, and the OCC reached a $1 billion settlement for auto-loan issues and mortgage practices. Wells Fargo acknowledged it had charged people with car loans for insurance without their knowledge, even if they already had insurance.

vi) Wells Fargo agreed to pay a $2.1 billion fine after facing allegations that it had improperly represented mortgages it sold to investors during the housing bubble. Wells Fargo was one of the last banks to deal with these issues.

C) & D) Wells Fargo had very balanced/risk averse practises in the run upto the housing bubble in 2008. It weather the storm that followed the Housing Bubble of 2008 as a rock solid bank. However, starting 2016, its reputation has been on a downward spiral. It has lost it's credibility and even today it has not been able to bring back its lost glory. Some the responses of the bank have been shocking to say the least. However in some cases it has reacted and taken corrective actions swiftly.