Wells Fargo's $1 Billion Pact Gives U.S. Power to Fire Managers
(Bloomberg) -- Wells Fargo & Co.’s $1 billion fine won’t close the book on fallout from its consumer scandals.
The nation’s third-largest bank submitted to an unprecedented order Friday that would give the Office of the Comptroller of the Currency the right to remove some of the lender’s executives or board members. That comes on top of the penalties Wells Fargo will pay to settle U.S. probes into mistreatment of consumers, the largest sanction of a U.S. bank under President Donald Trump.
The OCC said it “reserves the right to take additional supervisory action, including imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.” The agency could also veto potential executive candidates.
The bank will pay $500 million in penalties each to the OCC and the Consumer Financial Protection Bureau, according to a statement Friday. Wells Fargo warned shareholders last week it would soon face a fine of that size, which it will book retroactively in the first quarter. The bank remains under a Federal Reserve penalty that bans growth in total assets.
“CEOs who hoped the Trump administration would be universally lenient regulators missed the difference between a dislike for rules that stifle innovation and employment and a dislike for rules against wrongdoing,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
The settlement covers issues in Wells Fargo’s auto-lending and mortgage units. The bank revealed last year that it had forced unwanted insurance on customers who took out car loans, prompting investigations by U.S. and California regulators. It was also accused of imposing inappropriate charges for locking in interest rates on new home loans.
The bank will take a charge of $800 million for the first-quarter results it reported last week, reducing net income to $4.7 billion -- the worst first-quarter performance in six years.
Still, investors appeared relieved at the announcement, as shares advanced 1.8 percent to $52.44 at 11:10 a.m. in New York, the best performer in the 24-company KBW Bank Index. The settlement should remove one overhang from the shares, especially since the penalty isn’t as bad as some analysts had anticipated, Erika Najarian, an analyst at Bank of America Corp., wrote in a note.
Chief Executive Officer Tim Sloan, who took the helm after scandals began erupting in 2016, shuffled management and promised to overhaul the bank’s culture and controls to rebuild public trust. Ensuing scrutiny -- some initiated by the bank itself -- exposed more misconduct that had festered for years. The company even caught the ire of Trump, who tweeted in December it should face heightened penalties for “bad acts” against customers.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” Sloan said in a separate statement.
The settlement matches the biggest-ever for the OCC. It is also a record for the CFPB, which hadn’t announced any new enforcement cases since Mick Mulvaney started running the bureau in November. Mulvaney, a former GOP congressman who once called the bureau a “sad, sick joke,” has faced criticism from Democratic lawmakers for going easy on companies and slow-walking investigations.
“We have said all along that we will enforce the law,” Mulvaney said in the statement. “That is what we did here.”
Wells Fargo’s troubles began mounting in September of 2016, when authorities fined the firm $185 million for opening millions of accounts without customers’ permission. That included a then-record $100 million fine from the CFPB. Then-CEO John Stumpf resigned, executives forfeited tens of millions of dollars in compensation, and, over time, much of the board was replaced.
In February, the Fed cited a pattern of abuses and lapses while imposing an unprecedented sanction: Unless it gets special permission, the bank can’t boost total assets beyond their level at the end of 2017 until it addresses its shortcomings.
The nation’s third-largest lender by assets still faces federal scrutiny, with the U.S. Department of Justice and Securities and Exchange Commission examining the wealth-management unit, a person familiar with the probes has said. Chief Financial Officer John Shrewsberry told journalists on April 13 that investigations into the division are “midway through.”
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