Wells Fargo & Co established itself as one of America's biggest banks by erring on the side of caution rather than reckless expansion. Or so it seemed until a series of scandalous revelations starting in late 2016 revealed that at least part of its impressive growth had been assisted by sharp sales practices and false accounting. Sales staff were in effect encouraged by tough targets and an aggressive incentive scheme to cheat the system in order to earn substantial bonuses, or otherwise risk dismissal. Internal investigations revealed these practices to be widespread across multiple departments. The scandal had only a limited effect on the bank's financial performance but it badly tarnished what had up to then been a gold-plated reputation, and cost the jobs of several senior managers. Charles Scharf was appointed as CEO in 2019, the fourth executive to hold that role in three years. Almost four years later Wells Fargo had only just begun to put these troubles behind it when it took a new blow from the Covid pandemic. The business was created over the course of two decades from a series of careful acquisitions, not least the purchase in 1998 of the original Wells Fargo company by what was then Norwest Corp. However the defining deal came at the end of 2008. Seizing the opportunities provided by the general meltdown in the financial services industry, Wells Fargo snapped up failing competitor Wachovia, doubling in size to become one of the country's two biggest retail banks, even overtaking rival Bank of America in several areas. Although it has pruned back its huge branch network, it is still America's single biggest financial services company by outlets, with a network of 7,600 retail "stores" spread across 39 US states; also the biggest mortgage lender, having overtaken BofA in 2011; and was until its 2016 woes the world's most valuable bank by market capitalisation. More exposed to consumer banking than the other US big banks, Wells Fargo's performance was badly dented in 2020 by the Covid pandemic. Revenues slid to $72.3bn while net income plunged to $3.3bn, in large part as a result of a huge provision against pandemic-related bad debts. Total assets were just under $2 trillion. "Community banking" - the bank's preferred term for traditional retail banking - accounts for more than half of revenues, and wealth & investment management for almost another sixth. Abbott Downing is the bank's division for ultra-high wealth clients. Wells Fargo's wholesale and commercial banking business has traditionally been much smaller than other 'Big Four' banks, but was expanded in 2015 through the purchase of almost $50bn in commercial loans from what was then GE Capital.
Capsule checked 20th January 2021
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Marketer Moves 24th May 2021: Wells Fargo CMO departs, will not be replaced. See Marketer Moves (members only).
Adbrands Daily Update 6th Mar 2020: Two of America's biggest banks kicked off the reporting season with steep increases in their provisions against bad debt. Everyone knows the coming recession will be bad; no one knows just how bad. JPMorgan Chase put aside almost another $7bn against expected client bankruptcies and payment defaults, raising the total figure to $8.3bn, but warned that might not be enough. Wells Fargo increased its provision more than threefold to $3.8bn. Both figures weighed heavily on net income, with JPMC down 70% to $2.9bn and Wells down 90% to $653m. JPMC's revenues slipped 3% to $28.3bn, while Wells was down 10% to $17.7bn.
Adbrands Daily Update 24th Feb 2020: Wells Fargo agreed to pay $3bn in criminal and civil fines over the fake accounts scandal that has hung over the company for the past four years. That's on top of $2bn already paid out to banking regulators, and there are further negotiations under way to resolve issues discovered subsequently in the bank's mortgage lending and auto loans businesses. "This case illustrates a complete failure of leadership at multiple levels within the bank," said California district attorney Nick Hanna. "Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way."
Adbrands Daily Update 24th Jan 2020: In a startling and virtually unprecedented penalty, US regulators issued a lifetime ban that prohibits former Wells Fargo CEO John Stumpf from ever working in the banking industry again and fined him $17.5m. Stumpf was the architect of Wells Fargo's dramatic rise to the top of the financial services industry in the 1990s and early 2000s. However that ascendancy was fed by an aggressive sales culture that encouraged staff to cheat customers in order to hit their targets. According to the Office of the Comptroller of the Currency, Stumpf "was or should have been aware of the problem and its root cause". Seven other former executives including consumer bank head Carrie Tolstedt, chief administrative officer Hope Hardison and former chief risk officer Michael Loughlin were also charged and handed lesser fines. Some of these investigations are still ongoing. The agency is seeking a $25m fine for Ms Tolstedt and a similar lifetime ban from banking. The last such ban issued by regulators was against the CEO of former mortgage lender Countrywide Financial, barred in 2010 of serving as an officer of a publicly traded company following the 2008 sub-prime crisis.
Adbrands Daily Update 15th Jan 2020: JP Morgan Chase got the reporting season off to a strong start. Strong performances in both consumer retail banking and investment trading gave the bank its highest ever annual profit of $36.4bn, up 12%, on revenues that grew 6% to $115.6bn. Citigroup enjoyed a similar but smaller lift, with revenues rising 2% to $74.3bn, but net income jumped 8% $19.4bn. However, Wells Fargo was still under considerable pressure, with revenues slipping back to $85.1bn while net income was dented by another round of litigation expenses. A $1.5bn charge in the final quarter caused annual profits to fall to $19.6bn. "We came out of the financial crisis as the most valuable and most respected bank in the US," CEO Charles Scharf told analysts. "But as you know we made some terrible mistakes and haven't effectively addressed our shortcomings." He is promising to do so now. Bank of America was flat. Revenues edged up a little to $91.2bn but net income fell 2.5% to $27.4bn as a result of a large impairment charge against a discontinued merchant services joint venture with First Data.
Adbrands Daily Update 30th Sep 2019: After a prolonged search, Wells Fargo named Charles Scharf as its new CEO. He will join the company in October, filling a position that has been vacant for six months since the abrupt departure of predecessor Tim Sloan. Scharf has wide experience in financial services. He joins Wells Fargo from BNY Mellon where he has been CEO for two years. Before that he held the top job at Visa, and before that headed consumer banking at JP Morgan Chase.
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