Wells Fargo CFPB Findings ‘Highly Disturbing,’ Moody’s Saysby
Case involving fake accounts seen as a credit negative
Senators, presidential candidate Clinton criticize lender
Revelations that Wells Fargo & Co. employees opened more than 2 million unauthorized accounts are “highly disturbing” and could hurt holders of the bank’s debt, Moody’s Investors Service said.
The “deficiencies” uncovered by the Consumer Financial Protection Bureau and other government investigators show that the bank’s “vaunted cross-selling capabilities were inflated,” the credit grader said Monday in a report. The bank encouraged “pervasive inappropriate practices” and managers didn’t provide oversight of employees, Moody’s said. Results of examinations by CFPB and the Office of the Comptroller of the Currency are credit negatives, according to the report.
“The regulators’ findings are consequential for a bank such as Wells Fargo, which historically has had strong customer satisfaction scores and a reputation for sound risk management,” Moody’s analyst Allen Tischler wrote. “We do expect some immediate damage to Wells Fargo’s reputation from this embarrassing episode.”
The CFPB said last week that employees of San Francisco-based Wells Fargo secretly opened the unauthorized accounts to hit sales targets and receive bonuses. The bank agreed to resolve the allegations without admitting or denying wrongdoing, and pay $185 million in fines. The lender said it fired 5,300 employees over the matter and set aside $5 million for customer remediation. Wells Fargo has borrowings of $244 billion, according to its latest regulatory filings.
Moody’s said it expects the bank’s risk management and sales oversight will “ultimately be strengthened” by the regulators’ findings. It didn’t announce any ratings changes. Moody’s has an A2 rating on the bank’s long-term debt with a stable outlook.
Wells Fargo has come under fire from politicians since the fines were announced Thursday. Elizabeth Warren, Sherrod Brown and three other Democratic senators wrote a letter Monday to U.S. Senate Banking Committee Chairman Richard Shelby, calling for an investigation. Wells Fargo Chief Executive Officer John Stumpf should be called to testify, the senators wrote.
Presidential candidate Hillary Clinton on Friday praised the consumer watchdog for its work in the investigation. She said that Donald Trump, her Republican rival, wants to dismantle the CFPB.
The fines over the unauthorized accounts “probably should lead to a pay claw-back” from Carrie Tolstedt, the Wells Fargo executive who ran community banking until the company announced her retirement in July, Mike Mayo, an analyst at CLSA Ltd., wrote Monday in a client note.
“These issues should have been caught sooner and dealt with more forcefully,” Mayo wrote.
Ancel Martinez, a Wells Fargo spokesman, declined to comment on the Moody’s report, the senators’ letter and Tolstedt’s departure. A bank spokeswoman declined to comment last week on Clinton’s remarks.
Tolstedt has unvested stock awards that would be worth about $17.8 million if the company hits certain financial targets. She’ll also get $3.07 million in retirement benefits, according to data compiled by Bloomberg. That doesn’t include previously vested stock options that would be worth $38.5 million if exercised at Monday’s stock-market close. Tolstedt, 56, also holds about $53 million of shares amassed during her 27-year career.
Wells Fargo shares declined 0.4 percent to $48.54 at 4 p.m. in New York, the worst performance in the 24-company KBW Bank Index. The lender’s stock has lost 11 percent this year, while the S&P 500 Financials Index has gained 1.6 percent.