Wells Fargo’s $1 billion settlement over auto- and mortgage-lending practices addresses one costly challenge for the troubled lender, but doesn’t quell investor concern that further problems may be lurking.
The agreement announced Friday with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency was the latest step by Chief Executive Officer Tim Sloan to restore the San Francisco bank’s reputation by identifying and correcting any improprieties in its operations.
Sloan, who took over in late 2016, when a scandal involving millions of unauthorized customer accounts prompted the abrupt retirement of predecessor John Stumpf, has since grappled with lawsuits and congressional criticism as investors snubbed Wells Fargo stock.
“The settlement removes one overhang, but there are still overhangs on when business momentum will return to the company and whether or not additional wrongdoing will be found,” said Brian Kleinhanzl, an analyst with brokerage Keefe, Bruyette & Woods. “Ultimately, the timing of removing the remaining overhangs is still uncertain.”
Wells Fargo is setting aside an additional $800 million to cover the payment, which it said would reduce first-quarter profit by 16 cents a share. The government penalized the lender for selling some auto borrowers insurance they didn’t need under the pretense they might not qualify for the loans otherwise, and for charging fees to mortgage customers that it was supposed to be absorbing.
“For more than a year and a half, we have made progress on strengthening operational processes, internal controls, compliance and oversight, and delivering on our promise to review all of our practices and make things right for our customers,” Sloan said in a statement. “While we have more work to do,” the agreements “affirm that we share the same priorities with our regulators and that we are committed to working with them,” he said.
Wells Fargo conceded in September 2016 that 5,000 workers had been fired over a five-year period for creating more than 3 million unauthorized customer accounts in order to meet ambitious sales targets.
Its initial $185 million settlement with the CFPB and local regulators cost the bank lucrative bond deals with government agencies and led to contentious congressional hearings. The subsequent auto and mortgage probes only exacerbated regulators’ concerns.
Earlier this year, the Federal Reserve imposed a cap on Wells Fargo’s growth until it improves corporate oversight, a move that Sloan has said will curb the lender’s profit by as much as $400 million.
The directive requires the San Francisco-based lender to keep its assets at or below the roughly $2 trillion held at the end of December 2017. At that time, it was the nation’s third-largest bank, behind New York-based JPMorgan Chase and Charlotte, N.C.-based Bank of America.
While Wells Fargo stock has rebounded from initial declines related to the fake accounts, its growth of 5.5 percent since then is a fraction of the gains at rivals like Bank of America and Citigroup as well as the broader S&P 500. The bank’s stock fell 0.3 percent to $52.39 in New York trading on Monday.
