Wells Fargo & Co. (WFC) was handed a fine of $1 billion in a case relating to malpractices in its auto-lending and mortgage businesses. The bank was accused of misleading customers into taking auto insurance they did not need as well as for improper charges relating to mortgage interest rates.
Wells Fargo will have to pay $500 million each to the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency. The lender will record a charge of $800 million to its first quarter 2018 results, which were announced last week. The bank had reported its preliminary results last week with an option to adjust the fines they were expecting on this issue. This charge will bring down first quarter profits to $4.7 billion from the $5.9 billion figure reported earlier.
The company also booked a charge of over $3 billion for legal issues in its fourth quarter. Wells Fargo has been facing regulatory issues since 2016 following the illegal customer accounts scandal that led to a fine of $185 million, the exit of former CEO John Stumpf and a board reshuffle.
Wells Fargo’s wealth management division is being investigated by the DoJ and the SEC. The bank is also facing a unique restriction from the Federal Reserve under which, it cannot raise its total assets from the 2017-end level until it resolves all its issues.
Wells Fargo will record a charge of $800 million to its Q1 2018 results which will reduce profits to $4.7 billion
In the midst of all this, last month, Wells Fargo gave its CEO Tim Sloan a 35% pay raise for 2017, which came from an increase in stock awards value.
Teachers association boycott
Wells Fargo has become the prime financier for the American gun industry by helping two large gun companies avail significant amounts in loans. This has not helped its image at a time when gun violence has become a huge problem in the US.
Now a major teachers union, the American Federation of Teachers (AFT), has announced that it will cut ties with Wells Fargo due to the bank’s association with the National Rifle Association (NRA) and the firearm industry. Unless the lender stops doing business with gunmakers, the AFT will no longer channel mortgage loans between its members and Wells Fargo.
AFT’s President Randi Weingarten cited Wells Fargo chief Tim Sloan’s reluctance to meet and discuss the matter with union officials as the reason for the decision. Sloan, on the other hand, maintained his stance that the best way to deal with gun violence was through the political and legislative process.
This decision could have quite an impact on Wells Fargo’s revenue and it remains to be seen what the bank’s course of action will be on this matter.
It is said that “you win some, you lose some”, but it appears Wells Fargo is losing a bit too much. If the company does not find a way to plug its losses and start winning some, it will probably face a tough time ahead.