WFC - Wells Fargo

[StubbleJumper]

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.

 

 

I don't think that I've read too many opinions that WFC's conduct was acceptable; rather, there is a consensus that the behaviour was ridiculous.  But, as an investor, that's where it stops.  I am confident that future management will put in place controls to ensure that this type of thing will not happen in the future. 

 

As an investor, the challenge is to figure out whether the market has overreacted to this event and administered an excessive haircut to WFC's market cap.  It's the same challenge that investors had when Volkswagen announced its emissions issue and when British Petroleum was managing its major oil spill in the Gulf of Mexico.  What is the true economic damage to the company through fines, lawsuits, reputational damage, and enhanced regulatory oversight?  For BP, the market tended to overestimate the economic damage.  For Volkswagen, I don't really know.  But my sense is that for WFC, this whole thing will likely cost the company less than $1B pre-tax...so that might be perhaps $0.15/share after tax.  The haircut to WFC's market cap appears to far exceed my perception of the actual costs that they'll end up incurring.  At a certain point, the declining share price makes for a compelling investment opportunity if one can ignore all of the noise surrounding this issue.

 

Again, the behaviour is ridiculous...perhaps just as ridiculous as issuing NINJA-loans, securitizing turds and selling them to third parties, robo-signing, and just plain falsifying information on mortgage applications.  Fraudulent behaviour is fraudulent behaviour.  But this time, there's much less potential for loan losses, large fines and litigation.

 

 

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.

 

 

I don't think that I've read too many opinions that WFC's conduct was acceptable; rather, there is a consensus that the behaviour was ridiculous.  But, as an investor, that's where it stops.  I am confident that future management will put in place controls to ensure that this type of thing will not happen in the future. 

 

As an investor, the challenge is to figure out whether the market has overreacted to this event and administered an excessive haircut to WFC's market cap.  It's the same challenge that investors had when Volkswagen announced its emissions issue and when British Petroleum was managing its major oil spill in the Gulf of Mexico.  What is the true economic damage to the company through fines, lawsuits, reputational damage, and enhanced regulatory oversight?  For BP, the market tended to overestimate the economic damage.  For Volkswagen, I don't really know.  But my sense is that for WFC, this whole thing will likely cost the company less than $1B pre-tax...so that might be perhaps $0.15/share after tax.  The haircut to WFC's market cap appears to far exceed my perception of the actual costs that they'll end up incurring.  At a certain point, the declining share price makes for a compelling investment opportunity if one can ignore all of the noise surrounding this issue.

 

Again, the behaviour is ridiculous...perhaps just as ridiculous as issuing NINJA-loans, securitizing turds and selling them to third parties, robo-signing, and just plain falsifying information on mortgage applications.  Fraudulent behaviour is fraudulent behaviour.  But this time, there's much less potential for loan losses, large fines and litigation.

 

 

SJ

 

I agree, the investor perspective is a bit different.  I guess where I have problems is this:  management brushed this off as just a minor thing.  But I don't think it's minor.  It's an example of a) culture and b) lack of controls.  If a highly regulated institution lacks controls that stop illegal behavior then that's worrying.

 

One of my relatives works in the internal audit department of a very large bank.  I've asked her about situations like this.  At their bank the controls are so tight that he hurts how bankers and financial advisors operate.  She said a few try to skirt the law each year and they're caught.

 

To take this out of banking.  This reminds me of companies where when you order an item you get two or three shipments of the same item.  I've had this a few times and it never fails, the company's inventory system is so out of wack that they can't keep track of what they're doing.  Having a company with a system like this doesn't breed trust.

 

The shares are down from their highs, but I don't think we're in the "everything is priced in and I don't care what happens" territory yet either.

[rb]

Yea, I think Stumpf may be done.

 

Maybe but I imagine the board will consider his track record

I know Well's records is good that why I own it. But If the headlines keep on coming and if they start talking about Berkshire uncle Warren may do his thing. He's had CEOs fired for less.

[Peregrine]

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.

 

I think you are over-estimating the scale of this. From 2011-2015, 82 million deposit accounts were opened at Wells - of that 82 million, 1.5 million accounts were opened that CANNOT be ruled out that they were not authorized - essentially putting a cap of a maximum of 1.5 million accounts that were created without the customer approving. Moreover, many of these accounts were created and then quickly shut down likely due to fear of discovery. The short time frame in which these accounts were opened and closed meant that the returned fees associated with these accounts have been minimal.

 

There is no doubt that Wells Fargo has had a strong sales culture - this is why other banks large and small have envied their cross-sell numbers. But I do not believe for a second that this was wide-spread and systemic. It is true that Wells had incentivized strong selling (but which bank or company for that matter doesn't?) and my guess is that they have always sought to reign in bad behavior via strong controls and "inculcation of culture" as Jamie Dimon puts it. Unfortunately, in a bank this big, high sales incentives will ultimately lead to bad behavior somewhere. As Buffett says, "someone in Berkshire at this moment is doing something that I would not like." And in a bank this big, senior executives aren't immediately privy to the details happening on the ground floor.

 

There is no question that this is appalling behavior and Wells management and the company itself deserves some of the opprobrium that they are now getting. But let's put this into proportion as well.

[KinAlberta]

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

 

 

[Peregrine]

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

 

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

[arcube]

I had same thoughts earlier but right after grilling of Stmpf, there were three testimonies from LA Attorney office, OCC and CFPB officials to the Senate committee and when you hear first hand what they investigated and found it might shed more light on this situation.

 

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

 

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

[Peregrine]

I had same thoughts earlier but right after grilling of Stmpf, there were three testimonies from LA Attorney office, OCC and CFPB officials to the Senate committee and when you hear first hand what they investigated and found it might shed more light on this situation.

 

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

 

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

 

They were trying to connect the supposed cause of the unauthorized accounts - strong sales incentives - with the profits accruing to Wells shareholders and thus management.

[TheAiGuy]

Yea, I think Stumpf may be done.

 

Maybe but I imagine the board will consider his track record

I know Well's records is good that why I own it. But If the headlines keep on coming and if they start talking about Berkshire uncle Warren may do his thing. He's had CEOs fired for less.

 

I doubt you will see anything public. Wells Fargo has a mandatory retirement policy for senior officers at 65 and Stumpf just turned 63.

[mbreject]

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

 

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

 

Not all the fees were returned and some negative balances were sent to debt collectors. There's a guy who's actually suing WFC because of this.

[Simple Investor]

Plus all the people who actually utilized the credit cards that they were sent (without asking for them).  They ran up interest and other fees. In this case the extra fees that were generated out weighed the refunds. 

 

Lots of jamming clients with as many services as possible.  Just in case they need them.  Credit cards, Home equity, Margin, etc...

[cmlber]

What's the difference between this Wells Fargo issue and these stories that went unnoticed?

 

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

 

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

 

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences. 

 

[KCLarkin]

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

 

Curious. November is 13F season.

[rb]

Yea, Zero chance he sells WFC.

[arcube]

What's the difference between this Wells Fargo issue and these stories that went unnoticed?

 

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

 

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

 

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

 

I would guess they were not bailed out by American taxpayers in the recent past.

[Peregrine]

What's the difference between this Wells Fargo issue and these stories that went unnoticed?

 

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

 

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

 

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

 

I would guess they were not bailed out by American taxpayers in the recent past.

 

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

[merkhet]

Exactly. Neither Wells nor JP Morgan needed the bailout, but they were forced to take it anyway. But like frank87 says, it wouldn't matter in this political climate.

[KCLarkin]

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system.

 

Rather than being bailed out, WFC suffered unnecessary dilution at very low prices. Luckily the Wachovia acquisition made up for this dilution.

[KCLarkin]

This OpEd sums up my opinion on WFC:

http://www.cnbc.com/2016/09/22/stop-beating-up-on-wells-fargo-and-john-stumpf-commentary.html

 

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

 

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

[Picasso]

At an annual presentation that a Wells Fargo fixed income manager made last week to the Los Angeles Water and Power Employees’ retirement plan, the pension plan’s board president asked how the $185 million settlement made with federal regulators and the City and County of Los Angeles would affect plan members with Wells accounts and about corporate governance in general, according to Fundfire.

 

“We asked them about the settlement,” the chief investment officer of the pension fund, Jeremy Wolfson, told Fundfire.

 

Wells manages $936 million for the $12.8 billion plan.

 

The pension fund is not taking immediate action since it is not directly affected but is “monitoring” developments, he told the publication.

 

5 years from now we probably won't see any damage to the Wells franchise, but I think they've done a fair amount of damage in the short term. 

 

Also, I think we're all missing the bigger scandal here. 

 

http://www.forbes.com/sites/emilywillingham/2016/09/04/wells-fargo-encourages-budding-actors-to-become-botanists-and-apologizes/#115dbd584a56

 

An actor yesterday, now a botanist!  I dare say, this is an outrage!  It's time to burn this mother ****** to the ground.

[arcube]

What's the difference between this Wells Fargo issue and these stories that went unnoticed?

 

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

 

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

 

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

 

I would guess they were not bailed out by American taxpayers in the recent past.

 

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

 

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.

[arcube]

 

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

 

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

 

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.

[Spekulatius]

 

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

 

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

 

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.

 

Well, I think peace will haVe to wait a bit. I think this scandal is bigger than originally assumed, since it is pretty obvious, that senior management not only knew about it, they encouraged it and tried to get rid of those, that didn't want to play along. If it does need turn out that Stumpf directly was involved in firing whistleblowers, he is done for, and so is the rest of WFC's senior management.

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

[Peregrine]

 

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

 

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

 

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.

 

Well, I think peace will hVe to wait a bit. I think this scandal is bigger than originally assumed, since it is pretty obvious, that senior management not only new about it, they encouraged it and tried to get rid of those, that didn't want to play along. If it does need turn out that Stumpf directly was involved in firing whistleblowers, he is done for, and so is the rest of WFC's senior management.

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

 

When a scandal like this breaks out, there should be no surprise that fired employees come out of the woodwork claiming that they were fired for wrongful cause.

[rb]

Yea, this isn't going away

 

http://www.bloomberg.com/news/articles/2016-09-26/wells-fargo-sued-by-shareholders-over-cross-selling-scandal