Wells Fargo has agreed to pay a penalty of $65 million as part of a settlement reached with New York Attorney General Barbara D. Underwood concerning the bank’s cross-selling business model and sales practices.
“The misconduct at Wells Fargo was widespread across the bank and at every level of management — impacting both customers and investors who were misled,” according to Underwood.
Wells Fargo’s board began receiving reports about sales-practice misconduct in 2011, and its former CEO told Congress that he learned of the widespread fraud in 2013. The bank, though, did not disclose such information to investors.
“State securities laws are vital to protecting the hard-earned savings of working families and Main Street investors from financial fraud, and my office will continue to do what’s necessary to protect the public and the integrity of our markets,” Underwood said in a statement.
Though selling new products and services to existing clients is widespread across the financial industry, Wells Fargo “failed to disclose to investors that the success of its cross-sell efforts was built on sales-practice misconduct at the bank,” the attorney general’s office added.
“Driven by strict and unrealistic sales goals, employees in Wells Fargo’s Community Bank division engaged in fraudulent sales practices, including the opening of millions of fake deposit and credit card accounts without customers’ knowledge,” it added.
According to an email from June 2011 reviewed and shared by New York regulators, a member of the bank’s incentive compensation team said: “I’ve asked bankers … why people cheat … it’s because their manager tells them they’ll be fired if they don’t hit their minimums.”
“We are pleased to reach this agreement,” the bank said in a statement. “Wells Fargo did not admit liability, and we believe that putting this matter behind us is in the best interest of all of our stakeholders, including customers. The settlement costs have been previously accrued.”
In January, Wells Fargo said it was setting aside $3.25 billion reserve to cover litigation related to fake accounts and other issues. That followed a $1 billion charge in the third quarter for a potential settlement with regulators over pre-crisis mortgage sales.
The Attorney General’s office says it continues to investigate Wells Fargo in connection with the opening of “millions of unauthorized accounts and enrolling consumers in services without their knowledge or consent.”
In the third quarter, Wells Fargo’s wealth management unit — which accounts for 12% of the bank’s total net income — had 2% uptick in profit from the prior year to $732 billion.
That represented a big change from the second quarter, when net income sank 37% from the prior year and the unit set $114 million aside for refunds to wealth management clients who were charged “incorrect fees.”
The number of financial advisors in the retail brokerage business, though, fell again. It stands at 14,074 — down 490 from a year ago and 152 from the second quarter.
Since Wells Fargo’s fake-accounts scandal began capturing headlines in September 2016, the number of advisors has declined by 1,012 — a drop of 7% from 15,086 two years ago. The trend seems to be continuing into the fourth quarter.