WFC - Wells Fargo

[Munger_Disciple]

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.

 

+1

[Munger_Disciple]

Elizabeth Warren in full form:

http://video.cnbc.com/gallery/?video=3000551400

 

Stumpf brought this upon himself. At a minimum he could have kept silent and not praise Carrie Tolstedt as she was checking out with $125M.

[Spekulatius]

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.

 

+1

+2

 

It's funny;  I Thought the same thing, but could not express it as poignantly.

[DonFanucci]

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.

 

+1

 

-1

 

I think that is a completely ridiculous characterization of an entire sector of people who do valuable work.

[Picasso]

I'm not talking about a banker or manager in a branch, as they represent a large portion of the banking workforce.  Or all the people who work in the back office.  I'm talking about the 5% or so that are in upper/middle management.  It takes decades for them to move up into those ranks.  If it comes down to throwing someone else under the bus, they'll absolutely do it. 

 

I have some experience with this since I met my wife when we both worked at a fairly large bank.  She ended up walking out on a management position because one of the executives asked her to help throw another manager under the bus.  The FBI was investigating some money laundering issues and instead of the bank taking ownership of bad internal controls they spent a lot of time finding ways to ruin tellers lives.  Good luck getting another job with a felony on your record.  Somehow it almost never happens to upper management.

 

Wells said they fired 1% of their workers over the past several years for bad behavior.  What about all the people they fired for not hitting these stupidly aggressive sales goals?  Guys like Stumpf do various walk ins through branches all the time.  You don't think this kind of stuff was conveyed to him?  Everyone sells the same banking products, did he really think he just had the best salesman?  So he's either a liar or stupid in my books. 

 

The community banking level might be different, I wouldn't know.  But I can tell by listening to Stumpf that he's full of it.

[RadMan24]

I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

 

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

 

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.

[Eye4Valu]

I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

 

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

 

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.

 

Oh really? Engaging in fraud is no big deal? Maybe we should give senior management a raise?

[RadMan24]

I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

 

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.

Absent that proof, this scandal will be dealt with in appropriate manner.

 

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

[Picasso]

I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

 

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.

Absent that proof, this scandal will be dealt with in appropriate manner.

 

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

 

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

 

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.

[Peregrine]

I'm not talking about a banker or manager in a branch, as they represent a large portion of the banking workforce.  Or all the people who work in the back office.  I'm talking about the 5% or so that are in upper/middle management.  It takes decades for them to move up into those ranks.  If it comes down to throwing someone else under the bus, they'll absolutely do it. 

 

 

What you say applies generally to all large organizations, not just banks.

[muscleman]

I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

 

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

 

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.

 

Will this scandal make WFC uninvestable like Soloman Brothers? What do you guys think?

 

[Nnejad]

Gossip news sites writing articles on reddit and twitter user comments, being shared on my once treasured value investing message board.. I'm in my 9th circle of hell.

[rb]

Wow, Wells stock is taking it in the teeth

[Munger_Disciple]

 

https://www.bloomberg.com/gadfly/articles/2016-09-16/wells-fargo-needs-a-good-stumpf-speech-next-week-in-washington

[Astrea]

This story is nothing new. My understanding is that it all started when an internal audit run by WFC uncovered improper sales practices back in 2013. Then, it got leaked to the media (see LA times article http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html). Then, it attracted more scrutiny and the CFPB proceedings. During all this time, WFC fired the culprits, reimbursed clients to the tune of $2.6m ($23 on average over 115k accounts where charges were levied). The CFPB consent order asked WFC to put $5m aside for the restitutions and so that should give you a clue about the magnitude of this affair in terms of "harm done to the consumer". Of course, we've got federal prosecutors interested and we've got John Stumpf appearing before the Senate Banking Committee next week so WFC will still be in the news for a while. Then there's the reputation/trust issue but I don't see any lasting damage here for an institution like WFC. I think all banks are in the same boat so don't see anyone switching because of this etc.

 

For those looking for an entry point in WFC, this might be a nice one.

[muscleman]

The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

[Astrea]

The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

 

To me it is a mosquito bite but I don't know how material the outcomes of any federal prosecutions (should these proceed) could be. Any lawyers with a view?

[cmlber]

The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

 

It's $2 million in revenue over 5 years for a company that earned $100 billion over that period of time.  How can that be anything other than a mosquito bite?

 

You do have to wonder though why management didn't just incentivize cross-selling by rewarding employees for "active" new products with some definition that can't be gamed like card spending or new deposits. 

[CorpRaider]

I dunno.  Seems like I remember Norwest operating a fair amount of those loan production/consumer finance offices offering people subprime/consumer unsecured loans.  I remember they used to have a Wells Fargo branded ones down here in the south before they acquired Wachovia. 

[Peregrine]

Wells Fargo has known that some employees created unauthorized accounts for some time now and has repeatedly warned employees about  the repercussions of doing so. Because many employees' compensation were heavily commission-based, they were incentivized to sell - and in some cases, employees resorted to fraudulent tactics to do so.

 

I believe that Wells as an organization pushed for their employees to sell more products to existing customers but in doing so, some employees went too far. I think that these kinds of incentives will lead to bad conduct but I do not think that this is widespread by any means.

 

http://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-accounts-but-they-needed-a-paycheck.html?_r=0

[DonFanucci]

The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

 

It's $2 million in revenue over 5 years for a company that earned $100 billion over that period of time.  How can that be anything other than a mosquito bite?

 

You do have to wonder though why management didn't just incentivize cross-selling by rewarding employees for "active" new products with some definition that can't be gamed like card spending or new deposits.

 

I've made this mistake several times now. It may be a small issue, but now there is blood in the water. The Elizabeth Warrens will jump on the wagon and play right off of the sentiment that Picasso posted. People think businessmen are evil greedy bastards, bankers being the purest form. Now they can use the opportunity to impose punishment that doesn't fit the crime. Remember that regulators have tremendous arbitrary power over these institutions.

[KCLarkin]

http://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-accounts-but-they-needed-a-paycheck.html?_r=0

 

After the practice of creating phony accounts was first reported in The Los Angeles Times in late 2013, the bank stepped up its monitoring and ethics training, former employees said. For its part, the bank said it had caught the behavior and started firing workers before the article appeared.

 

In San Diego, Mr. Taha said he attended two days of ethics training where employees were shown the difference between valid and improper accounts.

 

But the problems persisted. Mr. Taha, 28, said he fielded complaints from customers about questionable accounts until shortly before he left the bank this summer. He said bank managers had grown weary of writing up reports on potentially improper sales.

 

“It was like jaywalking,” Mr. Taha said of the practice of creating fraudulent accounts. “It was hard to police.”

[mbreject]

I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

 

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.

Absent that proof, this scandal will be dealt with in appropriate manner.

 

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

 

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

 

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.

 

It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

[cmlber]

It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

 

It didn't effect deposit growth at all, which is the ultimate data point on customer satisfaction.  If customers were dissatisfied, they would be taking their deposits elsewhere.

[A_Hamilton]

I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

 

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.

Absent that proof, this scandal will be dealt with in appropriate manner.

 

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

 

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

 

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.

 

It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

 

I think what you guys are missing is that it did in fact drive earnings. There were sales incentives to do cross selling of multiple products which drives revenue per client and stickiness of deposits. What you are missing is how many millions of legitimate transactions/cross sales were driven by this sales incentive culture. The fraudulent accounts obviously didn't drive income, but they were a bi-product of an incentive system that was structured to earn profits. The problem was that there were no controls in place to stop abuses.