Wells Fargo Case

Wells Fargo strategy

-handling all of a customers financial needs(Walmart of banking) -building customer relationships -growth across business lines

Background on wells fargo

-the most valuable bank in the country -"one of the good banks" during the recession; San Francisco based -some issues: 175 million DOJ lending discrimination settlement, 6.5 million SEC settlement for MBS issues -2008 buys Wachovia for 12.5 billion -Post Wachovia: 11,000 branches, 12,000 ATM's, 70 million customers and over 200,000 employees -warren buffet -barron's most respected list -in 2015 had 86.1 billion in revenue and 22.9 billion in profits

How does Wells make sure it doesn't happen in the future?

Employee: •Surveys •Retention rate Hotline •Improved ethics training •Use the Hotline and other feedback avenues Managers: •Actions speak louder than words •Incentive package changes •Change practice around reporting Sales •Improve the Quality of Sale report card with tighter tolerances •Review hiring practices •Change Organization Structure

How could this of happened to a "good bank"? - Rationalization

•"only 1% get it wrong" •5,300 employees fired (only 10% managers); we are addressing the "bad apples" •Local problem •Actions Save my paycheck and job •Doing what the company asked •Each employee only has a small impact •Employees own ethical standards / moral code •Organizations culture, core values, and beliefs

What was the fall-out from the Scandal?

•$185 Million dollar fine from the CFPB •John Stumpf forced to retire and lost $41 million in unvested equity •Carrie Tolstedt forced to retire and lost $125 million in unvested equity •Tim Sloan named CEO •30% of customers looking at alternative banks, representing $99 Billion in balances •13% share drop, no longer America's most valuable bank •Sales quotas eliminated •Nearly every one of its business lines is under investigation by a government agency, including the Justice Department and the Securities and Exchange Commission. •The Federal Reserve took the rare step of capping the bank's growth in February 2018, citing risk-management deficiencies. A few months later, the Consumer Financial Protection Bureau and the OCC imposed a $1 billion fine on the bank for misconduct in its auto- and mortgage-lending business. The OCC said it found risk-management deficiencies that "constituted reckless, unsafe or unsound practices," leading to improper charges to hundreds of thousands of consumers. •In February 2019, Mr. Sloan testified before the House Financial Services Committee and engaged in combative exchanges with Republicans and Democrats alike. Minutes after the hearing ended, the OCC issued a rare statement, saying it was "disappointed with [Wells Fargo's] performance under our consent orders and its inability to execute effective corporate governance and a successful risk management program." •In a regulatory filing released the next day, Wells Fargo said its board awarded Mr. Sloan a 5% pay increase in 2018 from the prior year. House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) called the pay package "outrageous and wholly inappropriate" and urged the bank to fire Mr. Sloan.

Wells Banking Scandal

•1.5 million unauthorized checking accounts opened resulting in $2.2 million dollars in unnecessary fees for customers •565,000 unauthorized credit cards opened resulting in $400,000 dollars in unnecessary fees for customers

New CEO

•10/21/19 Wells Fargo announces that Charles Scharf has been named as CEO •1/20/20: Market Cap for JPMorgan & Chase: $426 BN; Bank of America: $306 BN; Wells Fargo:$203 BN

What was the fall-out from the Scandal?

•3/28/19Wells Fargo WFC 0.82% & Co. Chief Executive Tim Sloan stepped down Thursday, ending a 31-year career at the bank and a 2½-year slog to get it back on solid footing after a fake-account scandal badly damaged its reputation and standing with regulators. •Officials at the Office of the Comptroller of the Currency, one of the bank's primary regulators, were recently debating the rare step of forcing changes to Wells Fargo's senior management or board •Investors also have been skeptical. Wells Fargo's shares rose about 8% during Mr. Sloan's tenure, compared with a nearly 30% increase in the KBW Nasdaq Bank Index. The shares rose in after-hours trading Thursday, following Mr. Sloan's resignation. •Mr. Sloan never managed to convince regulators and others in Washington that he was the right person to fix the beleaguered bank. "About damn time," Sen. Elizabeth Warren (D., Mass.), who is currently running for president, tweeted following Mr. Sloan's resignation. "Tim Sloan should have been fired a long time ago."

How could this of happened to a "good bank"? Opportunity

•Better bank that didn't participate in bad practices •Relatively Small dollar amount involved compared to other scandals •Size of the organization - hard to detect •Some segments of the population may be easily misled (immigrants, students, the elderly) •No / Ineffective monitoring of inactive accounts •No SSN needed to open an account

How could this of happened to a "good bank"? Pressure

•Cross Sell / Going for Gr-eight •Continuous monitoring of Sales (Motivator Report / Check in every 2 hrs) •Praising high sales people •Senior mgmt. bonus based on cross sell •Employee pay and employment dependent on Sales numbers •Fear of retaliation for reporting suspicious behaviors and actions •Recent merger with Wachovia - needed to show success •What outside factors put pressure on an employee? (ex: personal finances)

How can Wells measure the impact of their strategy?

•Customer satisfaction surveys •Customer Retention rates •Number of Products per customer (Going for Gr-eight) •Share of a customer's wealth •Employee satisfaction surveys •Third party reviews (regulators, media, politicians, ex: cg42) •Mystery shopping •Good strategy: clear, ways to measure success, alignment

Wells Fargo org structure

•Sr. Exec VP of Community Banking (Carrie Tolstedt) •3 Regional Bank Executives •54 Regional Presidents •120 Area Managers •600 District Managers •5,700 Branch Managers •100,000 Branch Bankers and Tellers

As of 8/14/19

•Warren Buffett 's Berkshire Hathaway Inc. BRK.B 0.10% holds nearly $100 billion in financial-services stocks, underscoring the size of the billionaire investor's ongoing bet on the future of the U.S. economy. •Five of those companies have had positive performances so far this year on a total return basis. Moody's has been the best-performing, with a 49% total return, and American Express is up 30%, according to FactSet. Wells Fargo has fallen 1.7%, according to FactSet. The S&P 500's total return this year has been 14.7% •Mr. Buffett has come under criticism for standing behind Wells Fargo following the bank's sales-practices scandal in 2016. He has said that Wells should have addressed the scandal sooner but he doesn't plan to sell his stake.