For the last several years, Wells Fargo (WFC) has been making news for all the wrong reasons. During the long-drawn period of embarrassment, when regulatory agencies raised some serious allegations against it, Wells Fargo paid millions of dollars in settlements and apologized to customers on multiple occasions.
The San Francisco-based investment banker is so deeply entangled in lawsuits that it will be an uphill task for the company to regain investors’ confidence. Earlier this year, regulators stipulated that before expanding its operations any further, Wells Fargo should reshuffle its board of directors and settle all the cases.
The latest trouble started brewing last year after the bank was found to be involved in a series of inappropriate transactions involving mortgage and vehicle insurance customers. While announcing its first quarter earnings results on Friday, Wells Fargo confirmed it was facing $1 billion in fines from the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau for overcharging customers on auto insurance premiums and mortgage interest lock extensions.
Wells Fargo confirmed it was facing $1 billion in fines from regulators for overcharging customers
Though the first quarter results look impressive on the face of it, the key metrics are required to be revised down to reflect the penalty, which will be done on completion of the ongoing discussions with regulatory agencies. Experts believe that the penalty would reduce Q1 earnings by a quarter.
The murky transactions of the multinational bank came to the fore in September 2016, when federal regulators slapped a $185 million fine on it for what they termed ‘outrageous’ irregularities. The primary allegation was that Wells Fargo’s sales team had more than two million new accounts opened over a period of three years by coaxing people into doing so.
The crisis deepened when investigators found that the management punished employees who refused to get involved in the illegal activity. While the bank did not admit to having done anything illegal, it apologized to customers.
Even as the probe was progressing, a fresh lawsuit was filed against the bank for incorporating misleading clauses into its credit card contract with various small entrepreneurs, who ended up paying more than what they owed the bank.
WFC shares dropped sharply after the announcement and closed 3.4% lower on Friday, but pared a part of the loss in after-hours trading.