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Do Better Days Lie Ahead for Wells Fargo?

By Nicholas Larsen, International Banker

“I like Wells better than anything by far. We bought Wells this year. We’ve bought Wells month after month…for a lot of years. I like loading up on the one I like best.” That was the summation of one Warren Buffett back in 2012, at a time when he considered Wells Fargo his favourite bank. Indeed, it was Berkshire Hathaway’s biggest position at one point. But such a glowing appraisal from none other than the Oracle of Omaha himself must now seem like another lifetime for a bank that has suffered hugely under the weight of scandals, fines, penalties and even criminal charges. But does a more promising future loom on the horizon for one of the world’s biggest but most reputationally damaged banks of recent times?

Much of Wells Fargo’s problems, unsurprisingly, stem from the revelations in 2016 of the widespread malpractice being conducted by its sales divisions. For any bank, such disclosures would have been undoubtedly scandalous, but the fact that the bank’s business model historically relied on retail-customer business perhaps more than any other major US bank only compounded its problems. As a reminder, the scandal involved Wells Fargo employees, motivated by then-CEO John Stumpf’s “eight is great” motto, attempting to convince each customer to sign up to eight of the bank’s products. In order to meet this target, the bank’s salespeople began to cheat, namely by opening millions of customer deposit accounts and around half a million credit-card applications with neither the customers’ approval nor even their awareness over the course of around 15 years. And despite such underhanded practices being escalated by several employees to management—Stumpf included—little was done to control the situation. The scandal eventually forced Stumpf to resign his position.

The bank was fined in 2016 by several regulatory agencies, including the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC), to the combined tune of $185 million. But that was only the beginning of Wells Fargo’s problems. Its decline was further precipitated after reports uncovered that it had cheated customers in other business lines, particularly auto loans and mortgages, for which it eventually agreed in April 2018 to pay out $1 billion to settle allegations it engaged in lending abuses.

By December 2018, the bank announced a further $575-million settlement with all 50 state attorneys general and the attorney general for the District of Columbia in relation to these disclosed practices. “Wells Fargo customers entrusted their bank with their livelihood, their dreams, and their savings for the future,” noted Xavier Becerra, current Biden Administration health secretary and then-attorney general for California, where the bank is headquartered. “Instead of safeguarding its customers, Wells Fargo exploited them, signing them up for products—from bank…

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