Wells Fargo Unprecedented Fine Caps Growth-Stock Price Tumbled
Monday, February 5, 2018 was a bad day on the stock markets. For Wells Fargo Bank, it was much worse. Wells Fargo shares tumbled 9.2% on Monday — their biggest single-day drop since the financial crisis. Janet Yellen’s last act as Chair of the Federal Reserve, was to order Wells Fargo to stop growing. The Fed capped assets, measured as an average over 2 quarters, at the current level of $1.95 Trillion.
At a time of immense growth opportunity for banks, Wells Fargo, the third largest U.S. bank in terms of assets, has had their hands tied. The bank is open for business, can accept deposits and lend money, but until a plan for tighter reform is in place, must manage its assets to avoid growth.
President Trump has made no secret that he wants to reduce regulations on banks, especially on smaller regional banks. The tradeoff for less banking regulation, is more severe punishments for violations.
Rarely has a board had to deal with the repercussions, but this time, the Fed expressed its displeasure in written letters to former Wells Fargo Chairman Stephen Sanger and former Chairman and CEO John Stumpf. Letters were also sent to current board members saying the board had fallen short of the Fed’s oversight expectations.
Wells Fargo Bank has suffered a series of scandals and fines, from improper foreclosure, to unauthorized accounts, insurance forced on auto loan customers to inappropriate mortgage fees. While those scandals may have harmed growth, none has resulted in an imposed cap on growth. To see that ban removed, within 60 days, the bank must submit a plan with details on its oversight enhancements, improvements in compliance and risk management and how Wells plans to implement those improvements. If the Fed approves those plans, by September 30th, third-party consultants will need to review and monitor the progress of those plans to the regulator satisfaction. How this Growth cap will affect mortgages, foreclosures and banking for Wells Fargo customers remains to be seen. So far, the bank’s improvements haven’t satisfied the Federal Reserve yet.
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