Wells Fargo sets aside another $1.5 billion for new fake account payout
During the third quarter of 2019, Wells Fargo set aside $1.6 billion for an anticipated additional payout for its fake account scandal, but it looks like that won’t be enough money to cover whatever settlement or fine is on the horizon.
Wells Fargo revealed Tuesday that it set aside an additional $1.5 billion during the fourth quarter for “litigation accruals for a variety of matters, including previously disclosed retail sales practices matters,” meaning the bank now has at least $3.1 billion in reserve for litigation payouts.
If a settlement or fine of that size comes to fruition, it would bring the bank’s total payout to more than $5 billion over the last few years.
Wells Fargo has paid out nearly $2 billion in fines and settlements over the last several years for numerous legal and regulatory issues.
Most notable among those was for opening millions of fake accounts in customers’ names. That issue led to hundreds of millions of dollars in payouts to regulators, affected customers, and shareholders over the affair.
While the bank did not reveal what specifically this $1.5 billion is being set aside for, the bank’s language seems to indicate that another settlement or regulatory action is in the offing.
The bank’s net income in the third quarter was $2.9 billion, compared to $6.1 billion for the fourth quarter of 2018, and $4.6 billion for the third quarter of 2019.
The third quarter was also impacted by a sizable litigation accrual.
One of the main drivers of that decrease in revenue was the bank’s booking of that $1.5 billion for those “previously disclosed retail sales practices matters,” which is how Wells Fargo refers to the fake account situation.
Under the bank’s previous regime, Wells Fargo employees were both encouraged and rewarded to “sell” additional banking products to their customers.
That policy led to 5,000 Wells Fargo employees opening two million fake accounts in order to receive sales bonuses, which then led to a $150 million fine by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the city and county of Los Angeles.
But that was just the beginning of Wells Fargo’s troubles.
The bank later inked a $142 million settlement with the affected customers, and a $480 million settlement with a group of shareholders who accused the bank of making “certain misstatements and omissions” in the company’s disclosures about its sales practices.
But the bank’s issues didn’t end there.
Wells Fargo later paid out millions for overcharging military veterans on their mortgages, improperly denying mortgage modifications to borrowers facing foreclosure, potentially wrongfully force-placing auto insurance on more than half a million customers, and other issues.
But all those fines and settlements paled in comparison to the action taken by the CFPB and the OCC against the bank in April 2018, when the regulators fined the bank $1 billion for those auto insurance issues and for charging mortgage borrowers for interest rate lock extensions.
The CFPB indicated last year that it may not be done with Wells Fargo yet though.
Last year, CFPB Director Kathy Kraninger told top Senate Democrats that she is unhappy with Wells Fargo’s lackluster attempt to correct its risk management issues and that she is considering her options when it comes to the consequences.
“I am not satisfied with the bank’s progress to date and have instructed staff to take all appropriate actions to ensure the bank complies with the consent order and Federal consumer financial law,” Kraninger wrote in a letter to Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio. “Broadly speaking, I consider all options on the table for enforcing Bureau consent orders.”
It’s possible that this latest accrual (and the one before it) could be for a CFPB fine or settlement, but the wording of “litigation accruals for a variety of matters, including previously disclosed retail sales practices matters” implies that the money is being set aside for a lawsuit settlement.
More information about the accrual may be revealed by the bank when it files its 10-Q quarterly filing with the Securities and Exchange Commission in the coming days, as is customary when public companies report their quarterly earnings.
“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Wells Fargo CEO Charlie Scharf said in the bank’s earnings statement.
“During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results,” Scharf added. “This work is necessary to build the appropriate foundation for us to move forward. Wells Fargo plays an important role for our country, and we know that ultimately our actions and results will dictate when that trust is fully regained. And while the work is substantial, I am confident that with the appropriate prioritization of resources, processes, and management attention, we can accomplish what is expected of us.”