Wells Fargo Seen Owing Deceived Customers Less Than $50 Million

(Bloomberg) -- Wells Fargo & Co. faces potential damages of less than $50 million if it were to reimburse customers whose credit scores were harmed by the bank opening unauthorized accounts in their names, according to Goldman Sachs Group Inc. analysts.

The issue of reimbursement came up during Tuesday’s Senate Banking Committee hearing, when lawmakers including Jon Tester grilled Wells Fargo Chief Executive Officer John Stumpf about the possible ripple effects of unauthorized accounts that bank employees set up to help meet sales goals. About 565,000 of the 2 million potentially bogus accounts were for credit cards, and would have been reported to credit-rating companies.

Wells Fargo has refunded $2.6 million in fees to customers, but Tester said the consequences go beyond late charges. He said the unauthorized accounts could result in higher borrowing costs for those whose credit scores were dinged, especially for mortgages, and called on the bank to make remuneration.

“This is a big deal,” said Tester, a Montana Democrat. “The impacts on this are far, far more than the fees or fines that could be associated with that.”

‘Manageable’ Effects

The Goldman Sachs analysts said they see “the potential costs as very small.” Opening the unauthorized credit-card accounts would result in an average 10-point reduction in a customer’s FICO score, the analysts led by Richard Ramsden said Thursday in a note to investors. If all of the customers issued credit cards without their knowledge had also applied for a mortgage, the result would less than $50 million in higher interest expenses, they estimated.

“With investigations ongoing, we note that Wells Fargo may incur additional fines over and above the costs borne by their customers,” wrote Ramsden, who has a buy rating on the stock. Still, “the potential impact appears manageable.”

Wells Fargo agreed Sept. 8 to pay $185 million in fines and penalties to resolve regulators’ investigations into the bogus accounts. Analysts and Congressional leaders have called for the lender to claw back compensation from Carrie Tolstedt, 56, the former head of the retail bank, and for Stumpf, 63, to resign.

Wells Fargo slid 1 percent to $45.39 at 2:32 p.m. in New York. The shares have tumbled 17 percent this year, the worst performance in the 24-company KBW Bank Index.

To contact the reporter on this story: Laura J. Keller in New York at lkeller22@bloomberg.net. To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Steven Crabill