Wells Fargo hit on several fronts
The US Justice Department has started a preliminary inquiry into Wells Fargo following The Consumer Financial Protection Bureau's $185m settlement for the bank's misconduct in which employees opened over two million fake customer accounts to hit their sales targets. Its CEO, John Stumpf, will also testify before the Senate Banking Committee this week. The bank appears not to have appreciated the significance of the settlement and has suffered criticism in the media as well as a drop of nearly $20bn in market value; many are calling for Stumpf's resignation for his mishandling of the bank's wrongdoing. In addition, the bank's corporate disclosure obligations are being questioned.

Wells Fargo is facing a perfect storm of bad publicity and demands for changing its corporate culture after employees opened millions of fake customer accounts to hit their sales targets. The Justice Department has begun a preliminary inquiry into the bank’s conduct while its chief executive, John Stumpf, will be grilled this week by the Senate Banking Committee, including Senator Elizabeth Warren — the scourge of the big banks.

Wells Fargo was sure to face criticism over the misdeeds of employees once The Los Angeles Times broke the story three years ago, detailing a hard-driving sales culture in which retail bank employees opened the accounts without customer permission to pad performance numbers. The Consumer Financial Protection Bureau, a relatively new regulatory agency, eventually took up an investigation and announced a $185 million settlement this month.

What is unusual is that the reaction to the settlement seems to have caught Wells Fargo by surprise, as if management had no idea that it would be hit with so much scrutiny on different fronts. Unlike many companies that signal the existence of an investigation and its impending settlement in their regulatory filings, Wells Fargo did nothing to condition the market to what was going to come. Maybe that was out of a naïve belief that the size of the settlement — “only” $185 million — would not attract much attention in an era of multibillion dollar penalties.

Wells Fargo’s 2015 annual report, issued in February, blandly describes other lawsuits and investigations involving the bank, including mortgage issues related to the financial crisis, and notes that it had set aside approximately $1.3 billion to cover the cost of litigation. But it mentions nothing about the C.F.P.B.’s interest in how it treated its customers.