Wells Fargo is not well these days.
Mired in a $185 million fine, it has just shocked the whole financial industry with two million fake accounts. Its shares have dropped by over 15%. It’s investors are questioning its worth and its future. Through an examination of several numbers that stood out in this incident, hopefully, light can be shed on how and why the world’s second largest bank has fabricated its own disgrace.
2 million fake accounts
You may think you know how many bank accounts you have, but actually, you possibly don’t. Since 2011, Wells Fargo customers have been paying bank fees to ghost accounts created without them knowing. These unwarranted accounts allowed Wells Fargo employees to boost their sales performance and earn bonuses.
The employees secretly transferred money from existing accounts to newly created fake accounts, all without the account holders’ knowledge. Then they can charge customers overdraft fees since the original accounts no longer have enough money.
By doing that, Wells Fargo has made over $400,000 in annual fees, interest charges, and overdraft-protection fees out of 14,000 fake credit card accounts.
$185 million in fines
Besides falling share prices and a marred reputation, Wells Fargo also has to pay the largest penalty ordered by the Consumer Financial Protection Bureau since the establishment of CFPB in 2011. In addition, the banks also agreed to pay $5 million in refunds to its customers.
“It sounds like a big number,” David Vladeck, a Georgetown University law professor said in an interview with CNN, “but for a bank the size of Wells Fargo, it isn’t really.”
Wells Fargo has fired over 5,300 employees over the last few years due to their underhanded illegal operations. According to CFPB, Wells Fargo employees even created fake PIN numbers and email addresses to enroll customers in their online banking services.
Wells Fargo has investigated its own illegal practices for five years and fired a large number of employees. Yet the shady practices persisted because employees still think that’s what their bosses want.
For over 15 years, sales performance has been the driving force behind the bank, resulting in an entrenched culture. A Wall Street Journal’s interviews with Wells Fargo employees revealed that many branch managers constantly monitored, sometimes even hourly, employees’ progress towards sales goals. Sales number at the branches were reported to higher-ranking managers up to seven times a day.
However, John Stumpf, Wells Fargo’s chairman and CEO, denied that the company is obsessed with sales targets. He claimed that some employees just failed to honor the bank’s values, which include instructions on ethics and doing what’s right for the customers.
$124 million payday
Compared to the $5 million refund to all its victimized customers, Wells Fargo’s generosity towards the leader of the fake account unit–a $124 million fortune for her retirement–has unsurprisingly started an outrage and heated discussions.
Carrie Tolstedt, 56-year old executive vice president of the community banking division of Wells Fargo, is set to retire at the end of the year. She will be able to walk away with a mix of shares, options and restricted stock that have a total value of $124 million.
Tolstedt is known for the successful expansion of multiple accounts held by Wells Fargo customers under her leadership. Last year alone, she made $9 million in total pay as a reward for “continued growth in primary checking customers” and other metrics, according to CNN.
However, Stumpf suggested that the board will consider reducing the size of Tolstedt’s compensation. Furthermore, Wells Fargo said it has alerted every deposit account holder to review their accounts and close the ones they don’t recognize.
Stumpf said the scandal pains him more than any problem faced by the bank in his 35 years there. Amidst all the suspicion and distrust among customers and investors, it’s now on Wells Fargo to prove if it can actually go far.