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Wells Fargo Still Hasn’t Gotten Ahead of Its Problems

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Wells Fargo & Co. has recently launched a series of advertisements meant to rebuild trust with customers. But the ads, to pull an image from Wells Fargo’s long-ago campaigns, are putting the wagon before the horse.

Evidence of that is pilling up. On Thursday, the Wall Street Journal reported that Wells Fargo recently discovered that employees were improperly altering the documents of business borrowers, adding information to the accounts without the consent or notifying the clients. It’s not clear that altering the documents cost clients any money — a Wells Fargo spokesperson says it didn’t — but the problem is it has that familiar whiff of going behind customers’ backs, even though this is apparently on a smaller scale than Wells’s earlier scandal of phony accounts. Wells says that the activity continued to occur as recently as this year, and that it has reported the infractions to regulators.

The latest issue comes only a week after news came out that Wells Fargo admitted it had improperly collected fees on a Tennessee public pension fund. The fund says nearly $50,000. Wells Fargo claims less, but the bank also disclosed in a regulatory filing that it is discovering that improper fees could be a widespread problem in its pension fund business. The bank’s wealth management unit is also under investigation for pressuring clients into rolling over their low-cost 401(k) accounts into more expensive alternatives.

For Wells Fargo to spend money on an advertising campaign that says “trust us” seems like a giant waste of money, when evidence rolls out seemingly weekly that clients still shouldn’t.

But it also highlights a persistent and repeated problem that the bank and its CEO, Tim Sloan, have made throughout its recent scandal-plagued era. Wells Fargo has regularly said its problems are in the past, without spending the money it should to actually put those problems in the past. Wells Fargo, like other banks, doesn’t break out what it spends on compliance, and says it’s generally spending more, but in its most recent quarter it’s hard to see where. Salaries across the bank were up just 2 percent from a year ago, and down from the last three months of 2017. Overall expenses were up, but predominantly because of one-time costs, such as the $800 million it realized for paying its latest regulatory fine, which mostly had to do with auto lending. In February, the Federal Reserve sanctioned Wells Fargo for not having proper risk controls in place. The bank has since told shareholders it plans to cut costs, not raise them in order to improve compliance.

The most recent problem, according to the Wall Street Journal, appears to have come as Wells Fargo raced to comply with an order from regulators that it collect information on more than 100,000 accounts that it was supposed to have. It appears employees improperly altered the files, potentially adding false information, as part this regulatory review, once again showing a lack of oversight. Salaries in the unit in question fell during the first quarter.

The latest problems have not individually dented Wells Fargo’s stock price. Indeed, shares were down less than 1.5 percent on Thursday’s news. But the fact that Wells Fargo has yet to fix its problems definitely weighs on its shares. The stock is up less than 10 percent in the past year, underperforming the nearly 40 percent rise of the shares of rivals JPMorgan Chase & Co. and Bank of America Corp. Major shareholders, like Warren Buffett, say they are sticking with Wells and have continued to back Sloan, but eventually the gap between Wells and its peers — like the gap between slogans and scandals — will erode shareholder support.

The longer Sloan pretends that his bank’s problems are in the past, rather than being frank about the issues and spending the money to fix them, the shorter his time atop the bank will be.

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Stephen Gandel is a Bloomberg Opinion columnist covering banking and equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.


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