Wells Fargo Nears Deal With Authorities Over Sales Scandal

Zacks Equity Research

Per an article by The New York Times, Wells Fargo & Company WFC is nearing settlement with the U.S. Department of Justice and the Securities and Exchange Commission over matters of fake account openings scandal, auto lending probes and mortgage businesses.

The settlement terms and penalty charges are expected to be announced soon, per the article. Notably, the bank had set aside $3.6 billion as probable losses for legal matters as of Sep 30, 2019.

The major settlement relates to the revelation of a sales scam, wherein the bank’s employees allegedly opened millions of unauthorized accounts illegally to meet aggressive internal sales goals.

The news broke out in September 2016, post which, the company was subjected to investigations of several departments and businesses. As a result, a cap on Wells Fargo’s asset growth was imposed by the authorities, which will remain in place until the bank is able to give a reasonable assurance of staying out of trouble. The revelation also led to several layoffs and restructuring of operations.

Further, former CEO John Stumpf was banned from the banking industry last month and was charged along with seven other former executives a penalty of more than $58 million for involvement in the bank’s improper practices.

Our Take

Though this settlement will help Wells Fargo to overcome a major hurdle, the bank’s financials will continue to be affected by other ongoing probes.

The company continues to enhance compliance and operational risk management systems, along with timely remediation practices. Also, Wells Fargo is spending more on technology to ensure better data management and cybersecurity. These activities, along with close supervision of regulatory authorities, might help Wells Fargo move past the scandals and make way for growth.

Shares of Wells Fargo have gained 3.8% over the past six months compared with 20.1% growth recorded by the industry it belongs to.

Wells Fargo currently carries a Zacks Rank #3 (Hold).

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