WFC - Wells Fargo

[whiterose]

John Stumpf’s Prepared Testimony to Senate

In prepared testimony to be delivered before a Senate Committee on Tuesday, John Stumpf, chief executive of Wells Fargo, strikes a decidedly contrite tone on the scandal over fake accounts created by employees at the bank.

 

http://www.nytimes.com/interactive/2016/09/19/business/dealbook/document-wells-fargo-stumpf-prepared-testimony.html?_r=0

[Ballinvarosig Investors]

LOL, just for the added data point. I decided to check out my mother's relationship with Wells (she's super unsophisticated). They were table to talk her into creating new checking accounts for different travel destinations, explaining to her that by having separate accounts it limited her financial exposure if her account information became compromised (kind of true! good job, bankers).

I have bought a small position, but the above is why I am hesitant to buy more. If you have a few thousand rogue employees fiddling customer accounts (something that is very easy to find), I think it's very possible that employees were also engaged in other nefarious (and more difficult to track) activities. In a high-pressure environment, who knows what sort of garbage sales people were trying to sell to unsophisticated customers. Here in the UK, our banks were involved in a scandal where they sold payment protection insurance on their financial products that was either useless, too expensive, and hidden in the terms and conditions. The government took a hardline on the banks, and to this day the bill for mis-selling products is increasing. Relatively to the size of the banks involved, the fines involved have been huge (the British banks involved have market caps of £20-40bn, the fines for each bank were in the £4-8bn range).

 

https://www.theguardian.com/business/2011/may/05/how-ppi-scandal-unfolded

 

Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.

[tede02]

I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts. 

[KCLarkin]

Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.

 

Isn't this risk already priced into the stock? Banks are risky and regulated. That's why WFC trades at half the multiple of Kellog.

[Ballinvarosig Investors]

Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.

 

Isn't this risk already priced into the stock? Banks are risky and regulated. That's why WFC trades at half the multiple of Kellog.

Kind of. You compare WFC to peers and the stock price is probably off about 5-8% of what it should be. As a percentage of market cap, that number is significant, so perhaps I am being greedy to hope for a further decline.

[KinAlberta]

I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts.

 

Edwards Deming didn't have much good to say about bonuses either.

 

As for this scandal it's interesting that Munger (or was it Buffett) was 'throwing stones' at Valeant while under their nose hugely unethical activities were taking place in their own holdings.

 

 

[mbreject]

I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts.

 

Edwards Deming didn't have much good to say about bonuses either.

 

As for this scandal it's interesting that Munger (or was it Buffett) was 'throwing stones' at Valeant while under their nose hugely unethical activities were taking place in their own holdings.

 

http://www.insurance.ca.gov/0400-news/0100-press-releases/2016/release066-16.cfm

[arcube]

Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.

[rb]

When was a Senate hearing not charade?

[arcube]

When was a Senate hearing not charade?

 

Only when they made big auto CEOs ditch company planes and instead drive to hearings with tin cups in hands;) .

[Picasso]

Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.

 

Not sure if he knew this was going to be a colonoscopy.  Someone should have mentioned he can't eat for 24 hours and there's a special beverage one needs to take.

[arcube]

Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.

 

Not sure if he knew this was going to be a colonoscopy.  Someone should have mentioned he can't eat for 24 hours and there's a special beverage one needs to take.

 

Indeed. You always crack me up.

 

[Viking]

And the stock is up the last two days... A bit of a head scratcher to me given all the negative press. Also a little surprising to have no comment from Buffett. Perhaps he is waiting to make sure all the bad news is out first. I wonder if the plan is to have Stumpf take the heat for as long as possible and then resign to make legislators happy.

[StubbleJumper]

And the stock is up the last two days... A bit of a head scratcher to me given all the negative press. Also a little surprising to have no comment from Buffett. Perhaps he is waiting to make sure all the bad news is out first. I wonder if the plan is to have Stumpf take the heat for as long as possible and then resign to make legislators happy.

 

 

Yes, Stumpf will get shlonged for a few days, there'll be some trivial penalty for WFC to pay, a few silly class action suits that won't go anywhere and then life will go on...

 

 

SJ

[bookie71]

Does Wells Fargo have provisions for arbitration?  If so there probably won't be any class action law suits. (a shame, in my opinion)

[rb]

It does. All customer disputes will be solved through binding arbitration.

[adesigar]

There is never just one Cockroach

 

http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html

[KCLarkin]

If so there probably won't be any class action law suits. (a shame, in my opinion)

 

If you think that's a shame, you don't understand class action lawsuits.

[rb]

There is never just one Cockroach

 

http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html

Yea, I think Stumpf may be done.

[Buffetteer]

I am not thoroughly familiar with SEC Form 13D, but here is an explanation I found online. It deals with disclosure requirements of major shareholders:

 

Amendments to Schedule 13Ds must be filed “promptly” after a material change occurs to the facts submitted in the previously filed schedule. While the determination of what constitutes a “material” change is based on the facts and circumstances of the transaction, the SEC deems acquisitions or dispositions of beneficial ownership equal to 1 percent or more of the class of securities as “material.” In addition, while “promptly” has not been defined by the SEC and depends upon the facts and circumstances of the acquisition or disposition, in the case of a change of beneficial ownership equal to 1 percent or more of the class of securities the SEC has taken the position that “promptly” means “within 1 business day.” For all other instances, “promptly” is generally interpreted by practitioners as “within 10 days.”

 

Am I to understand that if Berkshire reduces its position in Wells Fargo by 1% or more we will know about it the next day, or at very least within 10 days?

 

Would be greatly appreciated if other members with a better understanding of SEC rules are able to clarify this.

[StubbleJumper]

Does Wells Fargo have provisions for arbitration?  If so there probably won't be any class action law suits. (a shame, in my opinion)

 

 

It wouldn't likely matter much anyway.  The aggregate "losses" that WFC's shenanigans imposed on clients were pretty minimal.  Even if a class could be certified, and if the complainants won, what would the settlement be?  Perhaps a $20 deposit into each complainant's account?  And that settlement would likely not occur until 2022 or something like that.  That would hardly move the needle for BV.  And the trivial fine that they'll end up paying will hardly move the needle either.

 

The biggest risk is damage to the WFC reputation/brand.  But IMO, even that is likely to be minimal.  Changing banks is a royal pain in the ass, so an established client needs to be pretty pissed off before he moves his accounts.  And the level of consumer awareness among the Joe Six-pack crowd is so low that probably nobody will even remember this by Easter.

 

Life will go on for WFC.  At some point, I might add to my position.

 

SJ

[oddballstocks]

I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

 

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

 

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

 

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh. 

[KinAlberta]

I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

 

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

 

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

 

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh.

 

Great post. Right on.  I think its just another temporary blast to a bank's reputation that some PR and marketing money will quickly obfuscate within a year or two. It may never die on the internet but will billions upon billions of new bits of business scandal news hitting the web every day, the worst repetitional hits dilute to nothing within a short time.

 

We can even expect headlines about how it was actually Buffett taking widows and orphan's social insurance numbers and issuing them costly and unwanted credit cards...

 

 

Warren Buffett to Fox Business: I'll Remain Silent on Wells Fargo for Now

By Liz Claman  Published September 21, 2016

 

http://www.foxbusiness.com/markets/2016/09/21/warren-buffett-to-fox-business-ill-remain-silent-on-wells-fargo-for-now.html

[KinAlberta]

I haven't been following this issue closely, so please forgive my ignorance, but wouldn't this also be a problem at a number of the other US banks as well? Don't they all aggressively incentivize their staff to cross-sell everything under the sun. Moreover, since lending risk and rates could be crimping their former style, couldn't this have been a near industry standard practise?  In otherwords, is this the tip of the iceberg and soon disgruntled former staff everywhere will be coming out of the woodwork...

 

 

[KCLarkin]

Yea, I think Stumpf may be done.

 

Maybe but I imagine the board will consider his track record