The Fed drops the hammer on Wells Fargo
by Donna Borak, Danielle Wiener-Bronner and Jackie Wattles @CNNMoney
February 2, 2018: 8:08 PM ET
The Federal Reserve has dropped the hammer on Wells Fargo.
The Fed handed down unprecedented punishment late Friday for what it called the bank’s “widespread consumer abuses,” including its notorious creation of millions of fake customer accounts.
Wells Fargo won’t be allowed to get any bigger than it was at the end of last year — $2 trillion in assets — until the Fed is satisfied that it has cleaned up its act.
Under pressure from the Fed, the bank agreed to remove three people from the board of directors by April and a fourth by the end of the year.
It is the first time the Federal Reserve has imposed a cap on the entire assets of a financial institution, according to a Fed official.
“We cannot tolerate pervasive and persistent misconduct at any bank,” outgoing Fed Chairwoman Janet Yellen said in a statement. Friday was her last day on the job.
Wells Fargo (WFC) controls more money than any bank in the United States besides JPMorgan Chase, according to Fed data. But its reputation has been shattered over the past year and a half by a seemingly endless series of misconduct.
Most prominently, Wells Fargo admitted that its workers responded to wildly unrealistic sales goals by creating as many as 3.5 million fake accounts. The bank has also said it forced up to 570,000 customers into unneeded auto insurance.
The bank agreed to the Fed’s conditions under what’s known as a consent decree. In a statement, Wells Fargo said it is “confident” it can meet the Fed’s requirements.
“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” said CEO Timothy Sloan, whose predecessor, John Stumpf, resigned a month after the fake-accounts scandal broke.
The Fed will require Wells Fargo to turn in detailed plans of what it has done, and intends to do, to fix the board. Wells Fargo must also submit a broader explanation for how it will improve its internal controls and its handling of risk. Those plans are due in 60 days.
By September 30, Wells Fargo must engage a third party to review how the bank is executing those plans.
Wells Fargo will still be able to accept consumer deposits and make loans to consumers, the Fed official said. However, it will be up to the bank to determine what changes may need to be made to its business in order to stay under the asset cap.
Wells Fargo stock fell more than 6% in after-hours trading Friday.
Senator Elizabeth Warren, a Massachusetts Democrat and the most prominent of Wells Fargo’s many critics in Congress, had begged Yellen to go after the board. Warren said in July that nothing would change at the big banks until “actual human begins are held accountable.” Warren’s office had no immediate comment on Friday night.
In a tweet Friday, Warren lauded Yellen for taking action and reiterated the case for tough regulation.
“Chair Yellen’s decision today to freeze the growth of Wells Fargo until it shapes up also demonstrates that we have the tools to rein in Wall Street — if our regulators have the guts to use them,” Warren wrote. “This one hits them where it hurts.”
The scandal broke into public view in September 2016, when regulators revealed that Wells Fargo had created millions of bank accounts for customers without their knowledge. The company admitted the fake accounts dated back to 2009.
Since then, Wells Fargo has faced lawsuits, federal and state investigations, fines, and a grilling from Congress. The company ousted its CEO, John Stumpf, in October 2016. The number of customers opening new accounts at the bank plummeted. Workers alleged they were fired or retaliated against for speaking up about misbehavior.
Legal bills cost the company $3.3 billion last quarter, Wells Fargo said in January.
And the fake accounts aren’t Wells Fargo’s only problem.
Last July, the company admitted it forced auto insurance on as many as 570,000 borrowers who didn’t need it. About 20,000 of those customers had their cars wrongfully repossessed in part due to these unwanted insurance charges.
In August, Wells Fargo was sued by small business owners who say the bank used deceptive language to dupe mom-and-pop businesses into paying “massive early termination fees.”
The company was in the headlines again in October for charging about 110,000 mortgage borrowers undue fees.
The Justice Department fined the company in November for illegally repossessing cars from more than 860 service members. Federal law requires banks to get a court order before repossessing a car from members of the military.
Fed freezes Wells Fargo’s growth, will force out four board members
BY SYLVAN LANE – 02/02/18 07:21 PM EST
© Greg Nash
The Federal Reserve Board on Friday night announced that it would restrict the growth of Wells Fargo and replace four of its board members, a massive blow to the scandal-ridden bank.
Wells Fargo is banned from doing anything that would increase its total consolidated assets past their December 2017 levels while it takes measures to bolster its compliance with federal banking laws. The bank will still be able to issue loans and take deposits.
The Fed’s action against Wells Fargo is one of the strongest federal rebukes to a big bank since the 2007 financial crisis.
“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” said Fed Chair Janet Yellen.
“The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”
The Fed forced every member of the Wells Fargo board to sign a consent order laying out the process through which the bank can return to expanding. Yellen, Fed Governors Jay Powell and Lael Brainard voted in favor the action. Randal Quarles, the Fed’s vice chair of supervision, did not vote given his recusal from matters involving Wells Fargo.
Wells Fargo has 60 days to send the Fed thorough action plans on how it would revamp the board’s oversight of the bank and its risk management system. The bank is also required to commission two third-party reviews of its reform efforts. All are subject to the Fed’s approval.
Tim Sloan, Wells Fargo CEO and president, said he’s”focused on addressing all of the Federal Reserve’s concerns,” which he said address matters the bank has taken internal steps to handle.
Wells Fargo has been involved in numerous scandals dating back to 2011, all prompting federal and state investigations. The San Francisco-based bank opened up to 3.5 million accounts for customers without their authorization while charging fees for the unwanted services. The Consumer Financial Protection Bureau fined Wells Fargo more than $100 million, and former CEO John Stump stepped down.
Wells Fargo also charged thousands of customers for auto insurance products they didn’t need, and also paid a $108 million settlement after charging veterans hidden fees to refinance their mortgages.
“It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress. We appreciate the Federal Reserve’s acknowledgment of our actions to date,” Sloan said.
Wells Fargo earned bipartisan scorn from lawmakers, some of whom called for Wells Fargo’s former leaders to be jailed. Some Democrats and liberal political groups had called on the Fed to wipe out Wells Fargo’s board and break up the bank.
The Fed’s action, which officials say is unprecedented, comes a day before Yellen’s term as chair ends and she leaves the board.
Republican lawmakers had warned Yellen against taking undue action against any bank, especially while multiple law enforcement and regulatory agencies were probing Wells Fargo.
Yellen was mum on the Fed’s plans to reign in Wells Fargo, but insisted the Fed would take commensurate action given the depth of the bank’s problems.
Source: The Hill