WFC - Wells Fargo

[Pelagic]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

 

 

[KCLarkin]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

 

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

 

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.

[Peregrine]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

 

The regulators have said that 2 million accounts (1.5m deposit accounts and 0.5m credit card accounts) MAY have been fraudulently created. The facts on this is still not completely clear. The average refund to consumers is $25.

 

And in some cases, the accounts were created and closed quickly after so that a) the employee gets credited for creating an account and b) his supervisors don't find out.

 

http://www.nytimes.com/2016/09/10/business/dealbook/wells-fargo-apologizes-but-doesnt-admit-misconduct.html

[Junto]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

 

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

 

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.

 

It's because it is by definition identity theft. http://www.ncsl.org/research/financial-services-and-commerce/identity-theft-state-statutes.aspx

 

They used other people's private personal information for financial gain. They may have been frauding WFC in its closed loop (in a myopic way) but it doesn't change the fact it was used for gain. Unethical in so many ways. As I previously stated, deplorable activity.

 

I agree in the fact that more of the penalty should have been returned to those whose identities were abused.

[Ballinvarosig Investors]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

The $185M fine itself is laughable. WFC made $21.5bn last year, this fine is less than 1% of those profits. It's basically a $80 speeding ticket to the average person.

[KCLarkin]

I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

 

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

 

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.

 

It's because it is by definition identity theft. http://www.ncsl.org/research/financial-services-and-commerce/identity-theft-state-statutes.aspx

 

They used other people's private personal information for financial gain. They may have been frauding WFC in its closed loop (in a myopic way) but it doesn't change the fact it was used for gain. Unethical in so many ways. As I previously stated, deplorable activity.

 

I agree in the fact that more of the penalty should have been returned to those whose identities were abused.

 

Well, let's ignore the massive identity theft. But can we at least agree that this is really old news:

http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html

 

This article is 3 years old. The only "news" is the fine. And frankly, it is much smaller than one would expect based on the LA Times report.

 

[Munger_Disciple]

John Stumpf interview on CNBC:

 

http://www.cnbc.com/2016/09/13/wells-fargo-ceo-john-stumpf-says-he-will-not-resign.html

 

I apologize if it is already posted. I thought Jim Cramer did a good job (I know, it is hard to believe).

[Peregrine]

I would also say that given the current political environment and rhetoric against big banks, the media has tended to obfuscate facts on things like this. Let's get all the facts before coming to conclusions.

[DCG]

Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.

 

 

I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

[cmlber]

Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.

 

 

I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

 

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers? 

[DCG]

Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.

 

 

I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

 

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers?

 

 

The media coverage can influence people though.

[mbreject]

This is clearly another case of misguided incentives. For a company as large as Wells, these kind of things will happen. Let's see how management responds to this.

 

With how many complaints that have been swept under the rug over the years, I'd say that management encourages this kind of behavior. Those 5,300 employees didn't come up with this on their own; they were taught.

 

That said, this is probably happening at all the big banks. I opened up an account with USB a few years ago and the teller (or possibly, someone higher up) opened up a different one than the one I signed up for. It came with things I didn't want or need like a debit card. I called to complain a few times with no luck. At the end of the day, I figured it wasn't worth the hassle of closing the account and looking for another bank and just didn't activate the card.

[Grenville]

Wells Fargo CEO John Stumpf Called to Account

http://www.wsj.com/articles/wells-fargo-ceo-john-stumpf-called-to-account-1473808533

 

...

The outspoken and sometimes combative Mr. Dimon is perhaps the most recognizable face of U.S. banking. Before and after the London whale episode unfolded, Mr. Dimon cut a very public figure, not always to his benefit. He initially referred to reports of trading problems in his bank as “a tempest in a teapot.”

 

J.P. Morgan chief James Dimon was quick to address the ‘London whale’ issue, once the bank owned it.

 

Mr. Dimon was later forced to eat those words, telling the Senate panel he had been “dead wrong.” But that willingness to fall on his own sword ultimately worked to

 

Mr. Dimon’s advantage. So, too, did his blunt talk about the nature of the problem. “We know we were sloppy, we know we were stupid, we know there was bad judgment,” he said in a television interview.

 

He and J.P. Morgan were also quick to address the issue, once they owned it. The bank held an investor call immediately after announcing the problem to markets.

….

 

And, so far, Mr. Stumpf’s communications strategy has been far less direct than that of Mr. Dimon.

 

Before interviews Tuesday, including with the Journal, his only public communication since the settlement announcement Thursday—in which the bank neither admitted nor denied wrongdoing—had been a short statement issued by the company. When he did speak, Mr. Stumpf focused on junior employees’ role in breaking rules and not following the bank’s ethics, rather than cultural or structural issues at the bank. Wells Fargo’s chief financial officer echoed a similar sentiment earlier Tuesday.

[cmlber]

Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.

 

 

I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

 

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers?

 

 

The media coverage can influence people though.

 

That's true.  Maybe I'm biased but I have a hard time thinking many customers would see this news and be spooked into switching their accounts to another bank.  A minority of customers got fraudulently charged $25 and had that credited back to them later.  As a Wells Fargo customer I couldn't care less...  Any bank can (and probably does) do stuff like this.  I'm more concerned with which bank is least likely to blow up on me in the next financial crisis and which bank has better service. 

 

[WneverLOSE]

Two Warren Buffett quotes I think fit this case quite nicely.

 

"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."

 

“’We can afford to lose money – even a lot of money.  But we can’t afford to lose reputation – even a shred of reputation.’ We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”

[PullTheTrigger]

Paraphrase Buffett: “If you lose money for the firm I will be understanding. If you lose reputation I will be ruthless.”

 

We shall see.

[Uccmal]

 

 

"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."

 

 

This one!  What Wells did to their employees and customers was absolutely unneccesary.  I am pretty sophisticated financially, but I dont tend to shop around for the best bank deal.  In Canada it rather pointless.  I have dealt with First National for mortgages, and TD for most everything else for a long time, and CIBC for basic banking. I like to keep it simple.  Cross selling to me doesn't require any work or effort.  I needed a line of credit so I went to FN first (they dont do them) and then TD.  Job done.  I cant imagine that other people are that different.  And the ones who need to shop for the very best deal, shaving a quarter percent for a short time, aren't going to make good long term customers.

 

 

I will say that if a company irritates me once too often I never go back or avoid it like the plague (I avoid Canadian Tire as much as possible; and will never, ever shop at Sears again - their credit department screwed me after I bought all new appliances and some garbage furniture). 

[Viking]

I was pleasantly surprised by Cramer's interview of Wells CEO. Stumpf's answers, however, were pretty pathetic. He said they had to fire 1,000 employees each of the last 5 years. They have about 100,000 retail employees so it was 'only' a 1% problem. He also basically said the issue was the 1,000 people each year were crooks and therefore got their asses fired and Wells Fargo is not to blame in any way.

 

Now if you listen to a Wells Fargo quarterly results conference call one of the key data points they communicate is average number of banking products a customer has with the bank. Over time Wells has been able to grow the number of financial products used by its customers. This has been important in the bank getting a premium multiple compared to its peer group. Perhaps Wells pushed a little too hard.

 

My guess is this issue will blow over in the coming months. I bought a chunk of WFC yesterday and will be happy to buy more should it sell off more.

[vox]

http://www.wsj.com/articles/federal-prosecutors-investigating-wells-fargo-over-sales-tactics-1473881424

 

"Federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. that led to the bank being hit last week with a $185 million fine, according to people familiar with the matter.

 

The investigation is being conducted by the U.S. attorney’s offices for the Southern District of New York and the Northern District of California, these people said. Prosecutors have yet to decide if any case, should they decide to pursue one, would be along civil or criminal lines, the people said."

 

Preet Bharara is looking into it. I wouldn't say that it's over yet.

[fareastwarriors]

http://www.wsj.com/articles/federal-prosecutors-investigating-wells-fargo-over-sales-tactics-1473881424

 

"Federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. that led to the bank being hit last week with a $185 million fine, according to people familiar with the matter.

 

The investigation is being conducted by the U.S. attorney’s offices for the Southern District of New York and the Northern District of California, these people said. Prosecutors have yet to decide if any case, should they decide to pursue one, would be along civil or criminal lines, the people said."

 

Preet Bharara is looking into it. I wouldn't say that it's over yet.

 

 

Waiting for the settlements in the $B ranges...

[KinAlberta]

 

 

"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."

 

 

This one!  What Wells did to their employees and customers was absolutely unneccesary.  I am pretty sophisticated financially, but I dont tend to shop around for the best bank deal.  In Canada it rather pointless.  I have dealt with First National for mortgages, and TD for most everything else for a long time, and CIBC for basic banking. I like to keep it simple.  Cross selling to me doesn't require any work or effort.  I needed a line of credit so I went to FN first (they dont do them) and then TD.  Job done.  I cant imagine that other people are that different.  And the ones who need to shop for the very best deal, shaving a quarter percent for a short time, aren't going to make good long term customers.

 

 

I will say that if a company irritates me once too often I never go back or avoid it like the plague (I avoid Canadian Tire as much as possible; and will never, ever shop at Sears again - their credit department screwed me after I bought all new appliances and some garbage furniture).

 

Exactly. I know people that take the time and effort to find the very best GIC rates, credit card rates, etc. They have absolutely zero loyalty to a bank. It's probably a healthy position to take but it takes a lot of time and effort for a potentially small return. They aren't any bank's profit centres.

 

 

My keep it simple logic says: invest in the best banks and insurance companies, but deal with a credit union.

[Munger_Disciple]

What bothered me about John Stumpf's interview on CNBC was that he did not totally own up to the egregious fraud that occurred under his watch. He almost exclusively kept blaming low level employees. When asked about taking responsibility, he kept saying "we" almost all the time. Only when Cramer pushed him hard he said "I" once. Also he tried to minimize the fraud/identity theft by saying well it was only 1% of employees per year doing it. This thing went on for 5 years and senior management took no action until the LA times investigated and published about the fraud.

 

I think it may be a very good idea to split up the Chairman and CEO roles at all large banks.

[Peregrine]

What bothered me about John Stumpf's interview on CNBC was that he did not totally own up to the egregious fraud that occurred under his watch. He almost exclusively kept blaming low level employees. When asked about taking responsibility, he kept saying "we" almost all the time. Only when Cramer pushed him hard he said "I" once. Also he tried to minimize the fraud/identity theft by saying well it was only 1% of employees per year doing it. This thing went on for 5 years and senior management took no action until the LA times investigated and published about the fraud.

 

I think it may be a very good idea to split up the Chairman and CEO roles at all large banks.

 

He was trying to draw a distinction that these were isolated incidents and not systemic and reflective of the culture as a whole. He took accountability for his oversight but I agree that he could've struck a more conciliatory tone.

[Munger_Disciple]

I agree that he could've struck a more conciliatory tone.

 

It is not just about striking the right tone. The same thing went on year after year and management either were completely unaware of the problem, and or they knew about it and chose not to address it. So there must be accountability on mid-level/senior management and problem managers should be fired. I find Stumpf acting as if he is in CYA mode.

[Picasso]

I agree that he could've struck a more conciliatory tone.

 

It is not just about striking the right tone. The same thing went on year after year and management either were completely unaware of the problem, and or they knew about it and chose not to address it. So there must be accountability on mid-level/senior management and problem managers should be fired. I find Stumpf acting as if he is in CYA mode.

 

That's 99% of banking management.  These are "yes" men and women who will throw anyone under the bus but themselves.  I remember having a meeting with five of these types of management bankers at once, and I wanted to puke.  You listen to them talk and it's hard to imagine they believe any of the nonsense they spout of their mouths.  Yet I think they believe their spin.  It's hard to know because they don't seem to have a soul.

 

It's kind of like politics.  Anyone who can get up the ranks to become the President should definitely not be President.  Banking is very similar.