Wells Fargo was named by Global Finance and The Banker in 2016 as the best U.S. bank. Brand Finance calls it the most valuable bank brand on earth. CEO John Stumpf was named 2015 CEO of the year by Morningstar.
Wells media accolades are known far and wide. It was broadly admired by the American public even though this is a big bank. Wells has $1.9 trillion in assets, 269,000 employees, 70 million customers in 8,800 locations. Wells also has the highest cross selling ratio in the industry with an average customer using 6.15 different services.
By now we all are aware of the fraudulent accounts at Wells that were made public recently. Wells, once one of the most admired companies, now sits in the gutter with other entities that are known to milk revenues from the customer. Fines from the Federal Government and testimony in front of Congress are now the headlines for the bank.
But there are three entities that have failed in this situation. The first is the leadership at Wells, itself. The records show that Wells was aware of the fraudulent accounts dating back to 2011. In the five years since then, Wells has terminated 5,300 employees during this time, who were involved in this scheme to pad their own salaries, or in some cases, making goals just to save their jobs.
Five years is a very long time for this to continue.
But this was not just a get rich quick scheme. This lasted for years and probably even years prior to 2011. This was ingrained in the culture of Wells and praised by the shareholders of the bank. The head of retail banking at Wells was praised as one of the most powerful women in banking. She oversaw the growth of Wells into a retail powerhouse. She also left the bank in July with a $125MM bonus.
Maybe this is the old bank culture that is rearing its ugly head again. Maybe it is the same disease that brought us Enron, the subprime mortgage bubble, the financial crisis, and all angst associated with it.
The second failure is the media. The Los Angeles Times reported in an article on December 21, 2013 titled “Wells Fargo’s Pressure-Cooker Culture Comes at a Cost.” This outlined the aggressive tactics pushing banker sales teams and cross selling products. In the article, the writer states, “The relentless pressure to sell has battered employee morale and led to ethical breeches, customer complaints, and labor lawsuits.” Employees were forced to work after hours to make up for missed sales quotas. The Times reported one branch manager was constantly told that she would “end up working for McDonald’s” during the hourly browbeatings, otherwise known as sales coaching calls.
So the question to the media here is how does the Wells go from a pressure-cooker to the most respected bank brand in the U.S. when nothing changes with its sales culture?
The third entity who failed is the U.S. Government, specifically the Consumer Financial Protection Bureau (CFPB). Many of you know that this agency was formed unconstitutionally with no congressional budgetary oversight. Discussion of that is for another time. This agency is supposed to protect the little consumer against the large corporation. Now they hail this finding as a positive to their very existence. But the question is, did they really do their job.
The evidence will lie in two areas, time and money. First is time. The CFPB knew about these practices since 2011. It was widely known in the industry. Now in 2016, just before an election, the findings become public. The long time this has taken also allowed Wells to continue to open bogus accounts, continue to make money, and even allow some of its key people who oversaw the fraud to retire wealthy.
The second is the money. The CFPB will assess a record $100 million fine. Wells will pay another $35 million to the Comptroller of the Currency and $50 million in penalties to the Los Angeles city attorney’s office, for a grand total of $185 million. To most of us, this seems like a lot of money. But how does it look to Wells?
In 2015 Wells earned top line revenue of $86,057,000,000. This comes down to $235.8 million in revenue a day or $9.82 million in revenue per hour. So the fine of $185MM is less than a full day’s worth of top line revenue to Wells. It comes down to only 18.8 hours of time. Do you think that penalizing a company for 18.8 hours of earnings is enough to cause them to realize the gravity of the fine? The next time some money making scam is created by the bank leadership that will generate billions in revenue but only cost a penalty of 18.8 hours’ worth of earnings, do you think that penalty will be severe enough to deter future wrongdoings?
It all points to governmental ineptness. All I can say is time to move to another place to bank. Credit unions are the place to be.
By the time you are reading this, we will have finished our Agricultural Education Forum in Miles City. We appreciate having the opportunity to visit with each student in the class. Please take advantage of our Small Business Lending Class in Fargo on October 5-6 and our Intermediate Agricultural Finance Class in Fargo on October 6-7. Come to the New Ideas Conference and stay for some good business lending education.
We also have our Commercial Real Estate Lending class in Deadwood on October 17 and 18. We have quite a bit of space available in that class. We will be holding this at the Tin Lizzie Gaming Resort and will also have our first blackjack tournament during the social hour on the 17th. We look forward to seeing you there!