Wells Fargo & Company (“Wells Fargo”) is an American multinational financial services company.[1] It currently holds the title as one of the reigning ‘Big Four Banks’ in the United States.[2] Its current market capitalization of $222.96 billion makes it the world’s fourth largest-bank,[3] and with $1.95 trillion in total assets, it also qualifies as the third largest bank in the U.S.[4] In 2013, Wells Fargo was recognized by the Environmental Protection Agency for its excellent, pioneering work in the reduction of greenhouse gas emissions.[5] Certainly, Wells Fargo is an exemplary model for any company seeking to reach the pinnacle of business success. When it was incorporated, Wells Fargo began modestly as an express service that carried gold and parcels by horseback.[6] Since then, it has morphed into one of the leading Fortune 500 companies – a dream for its founders, Henry Wells and William Fargo.[7] But the days of Wells Fargo reveling in fame and praise would soon end.[8] Beginning in 2016, Wells Fargo has been stuck playing defense as it attempts to fend off an onslaught of lawsuits and government investigations.[9] As the conditions befalling it worsened, Wells Fargo still has not been successful in regaining the public’s confidence.[10] Characterized as too big to fail,[11] there is reason to doubt this colloquialism, as Wells Fargo’s continue to struggle.[12] However, as its CEO, Tim Sloan[13], heads for retirement,[14] can former Federal Reserve governor, Elizabeth Duke [15], Well Fargo’s Chairwoman of the Board of Directors, find a savior to lead the embattled bank?
Wells Fargo: A Fallen Hero?
The Emergency Economic and Stabilization Act of 2008 (the “Act”)[16] approved a $700 billion bailout for financial institutions to prevent the further deterioration of the U.S.financial market. The Act created the Troubled Asset Relief Program (“TARP”)[17] with the mission of stabilizing the struggling U.S. economy.[18] Eight banks, including Wells Fargo, participated in the program,[19] which received $25 billion in bailout funds in exchange for their preferred stock.[20] In the years that followed, Wells Fargo was showered with rave reviews for the role it played in pulling the U.S.out of a state of financial crisis.[21] Though Wells Fargo was applauded for its performance when America was most vulnerable, its once promising future is now in jeopardy, as it continuously finds itself buried under an avalanche of controversy.[22]
Wells Fargo’s Stormy Ride
The company’s tumultuous period started in September 2016, when news broke that Wells Fargo was embroiled in a ‘fake account scandal.’[23] The scandal originated when Wells Fargo employees created ghost accounts and thereafter deposited funds into them from a customers’ existing bank account without their consent.[24] This resulted in bogus account fees imposed on the unknowing customer, while surreptitiously, the employees’ sale numbers increased.[25] Presumably, this devious scheme was in response to meeting Wells Fargo’s unrealistic target goals.[26] There was a sharp two-part reaction following the news which was an instantaneous nightmare for Wells Fargo. Not only did its banking customers desert the company in droves,[27] but there also was a mountain of lawsuits launched at Wells Fargo soon after.[28] The wounds Wells Fargo sustained did not stop there, as the Consumer Financial Protection Bureau fanned the flames by levying an unprecedented penalty of $185 million in fines.[29] Even as it faced this tremendous backlash, Wells Fargo still managed to find itself at the center of numerous other dishonest practices.[30] For example, Wells Fargo wrongly charged ‘mortgage rate extension fees’ to mortgage borrowers,[31] inappropriately enrolled customers into unnecessary car insurance policies,[32] and erroneously added products to a customer’s account without their consent.[33] Considering Wells Fargo’s repeated bad behavior and wrongdoings, it is no wonder that theFederal Reserve Bank decided to put its foot down.[34] In its cease and desist consent decree order,[35] the Federal Reserve took the extraordinary measure of placing a cap on Wells Fargo’s assets, freezing them at December 2017’s quarterly calendar levels, thereby prohibiting Wells Fargo from exceeding its estimated $2 trillion in assets.[36] Undeniably, the sweeping repercussions by the Federal Reserve’s stiff penalty, along with other imposed disclosure requirements, exacerbated Wells Fargo’s wounds by reaching far into the ownership interests of investors. After all, the current shareholders of Wells Fargo must know that their equity interest cannot increase past the 2017 asset level, and potential investors simply have no incentive to buy stock in a company that cannot earn capital beyond a certain threshold in net gains.[37]
A Way Forward?
Currently, Wells Fargo has assured and pledged to its investors that it will remain outside the scandalous fray and avoid any further misconduct.[38] In fact, it took a step in the right direction by highlighting the progress it made to rebuild the trust and confidence of shareholders, customers, and communities.[39] Furthermore, Wells Fargo has published a report that provides six encouraging agenda goals, which is understood to be a path toward enhancing the efficiency of its future business practices.[40] Collectively, these calculated efforts signify a concerted media blitz by Wells Fargo.[41] By switching to the offensive, Wells Fargo’s planned trajectory is to appeal to its lost customers, timed alongside the recent launch of its public relations marketing campaign.[42] This is not to mention that the now-outgoing Tim Sloan bravely appeared before Congress to lay out the efforts Wells Fargo has taken to repair its scandal-plagued history.[43] Regardless of his efforts, critics and market observers called for and pressured Tim Sloan to leave the company to make way for another CEO with a new perspective.[44] One distinguishable criticism came from Senator Elizabeth Warren,[45] who vehemently called for Tim Sloan to step down.[46] Senator Warren believed that he was too entrenched in Wells Fargo’s corrupt sales practices in the ‘fake account scandal’ and that the taint from his complicity severely diminished his effectiveness as CEO.[47] As a result of these complaints, Tim Sloan abruptly announced his retirement, which noticeably increased Wells Fargo stock by 2.6%.[48] Now, as Wells Fargo searched for a new CEO, there are new emerging questions that demands attention,[49] Will the incoming CEO have enough familiarity with the company? Can the new CEO competently work under the menacing eye of Congress, regulators, and shareholders all at once? The Chairwoman of Wells Fargo’s Board, Elizabeth Duke, is no stranger to volatile controversies[50] and has suggested that the company seek out a CEO that will help Wells Fargo heal and reclaim the public’s trustworthiness.[51] If there exists any agreement about Wells Fargo’s future, it is that the incoming CEO will have little time to celebrate their title. Instead, they must work quickly to save the company from the ridicule and harsh treatment it has endured.[52]
[1] See generally, Wells Fargo Bank, N.A., Wells Fargo Today (Jan. 2019), https://www08.wellsfargomedia.com/assets/pdf/about/corporate/wells-fargo-today.pdf.
[2] Erin Oneil, The Biggest Banks In The United States, The Balance (Dec. 16, 2018), https://www.thebalance.com/the-big-4-us-banks-315130.
[3] Greg McFarlane, How Wells Fargo Became One of the Biggest Banks in America, Investopedia (Mar. 29, 2019), https://www.investopedia.com/articles/markets/093014/how-wells-fargo-became-biggest-bank-america.asp.
[4] Oneil, supra note 2.
[5] United States Environmental Protection Agency, 2013 Climate Leadership Award Winners, https://www.epa.gov/climateleadership/2013-climate-leadership-award-winners (last visited Apr. 4, 2019).
[6] Wells Fargo, History of Wells Fargo, https://www.wellsfargo.com/about/corporate/history/ (last visited Apr. 4, 2019).
[7] Id.
[8] Matt Egan, Wells Fargo Still Faces Over A Dozen Probes Tied To Fake Account Scandal, CNN (Mar. 31, 2017), https://money.cnn.com/2017/03/31/investing/wells-fargo-investigations-fake-account-scandal/index.html?iid=EL.
[9] Id.
[10] Matt Egan, Wells Fargo’s Reputation Is Tanking, Survey Finds, CNN (Oct. 24, 2016), https://money.cnn.com/2016/10/24/investing/wells-fargo-fake-accounts-angry-customers/index.html.
[11] Zach Carter, Why Does Wells Fargo Still Exist?,Huffpost(Aug. 25, 2018), https://www.huffpost.com/entry/why-does-wells-fargo-still-exist_n_5b80148ee4b0729515126185.
[12] Matt Egan, Wells Fargo Stock Sinks To 2-1/2 Year Low, CNN (Sep. 26, 2016), https://money.cnn.com/2016/09/26/investing/wells-fargo-stock-fake-account-scandal/index.html.
[13] Matt Egan, Wells Fargo Names Female Chairman, A First For A Top U.S. Bank, CNN (Aug. 15, 2017), https://money.cnn.com/2017/08/15/investing/wells-fargo-chairman-duke-sanger/index.html?iid=EL.
[14] Hugh Son & Kate Rooney, Wells Fargo CEO Tim Sloan Is Retiring, And Shares Jump, CNBC (Mar. 28, 2019), https://www.cnbc.com/2019/03/28/wells-fargo-ceo-tim-sloan-retiring.html.
[15] Egan, supra note 13.
[16] Emergency Economic and Stabilization Act of 2008, Pub. L. No. 110-343, 122 Stat. 3765 (2008).
[17] Paul Jackson, Wells Fargo Is $25 Billion Richer, Thanks To TARP, Housingwire (Oct. 30, 2008), https://www.housingwire.com/articles/wells-fargo-25-billion-richer-thanks-tarp.
[18] Id.
[19] History, Troubled Asset Relief Program (TARP), https://www.history.com/topics/21st-century/troubled-asset-relief-program#section_4 (last visited Apr. 5, 2019).
[20] Jackson, supra note 17.
[21] David Ellis, Banks Rally But Not Out Of The Woods Yet, CNN (July, 16, 2008), https://money.cnn.com/2008/07/16/news/companies/wells_fargo_financials/index.htm?postversion=2008071616.
[22] Jackson, supra note 17.
[23] Matt Egan, 5,300 Wells Fargo Employees Fired Over 2 Million Phony Accounts, CNN (Sep. 9, 2016), https://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/index.html?iid=EL.
[24] Id.
[25] Id.
[26] Matt Egan, Workers Tell Wells Fargo Horror Stories, CNN (Sep. 9, 2016), https://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/?iid=EL.
[27] Mark Calvey, Wells Fargo Could See Almost Half Its Customers Leave Bank Over Scandal, Bizjournals (Oct. 24, 2016), https://www.bizjournals.com/sanfrancisco/news/2016/10/24/wells-fargo-bank-wfc-fake-accounts-scandal-study.html.
[28] Heather Kelly, Wells Fargo Sued By Customers Over Fraudulent Accounts, CNN (Sep. 16, 2016), https://money.cnn.com/2016/09/16/technology/wells-fargo-lawsuit/index.html?iid=EL.
[29] Egan, supra note 23. Wells Fargo also later agreed to pay $575 million in settlement costs across the 50 states and the District of Columbia. SeeAnnalyn Kurtz, Wells Fargo Is Paying $575 Million To States To Settle Fake Account Claims, CNN(Dec. 28, 2018), https://www.cnn.com/2018/12/28/business/wells-fargo-settlement/index.html.
[30] Ethan Wolffe-Man, Every Wells Fargo Consumer Scandal Since 2015: A Timeline, Yahoo (Aug. 8, 2018), https://finance.yahoo.com/news/every-wells-fargo-consumer-scandal-since-2015-timeline-194946222.html.
[31] Matt Egan, Wells Fargo Wrongly Hit Homebuyers With Fees To Lock In Mortgage Rates, CNN(Oct. 4, 2017), https://money.cnn.com/2017/10/04/investing/wells-fargo-mortgage-rate-lock-fees/index.html?iid=EL.
[32] Matt Egan, Wells Fargo Customer: It Felt Like My Car Was Held As Extortion, CNN (Aug. 8, 2017), https://money.cnn.com/2017/08/08/investing/wells-fargo-auto-insurance-scandal/index.html?iid=EL.
[33] Matt Egan, Another Wells Fargo Mess: Pet Insurance Ripoff, CNN (July 20, 2018), https://money.cnn.com/2018/07/19/news/companies/wells-fargo-pet-insurance-refund/index.html?iid=EL.
[34] Donna Borak, The Fed Drops The Hammer On Wells Fargo, CNN (Feb. 3, 2018), https://money.cnn.com/2018/02/02/news/companies/wells-fargo-federal-reserve/index.html?iid=EL.
[35] Press Release, Bd. Of Governors Of The Fed. Reserve Sys. Response To Recent And Widespread Consumer Abuses And Other Compliance Breakdowns By Wells Fargo (Feb. 2, 2018), https://www.federalreserve.gov/newsevents/pressreleases/enforcement20180202a.htm.
[36] Borak, supra note 34.
[37] Matthew Frankel, Wells Fargo’s Harsh Penalty Could Be A Game Changer, Fool (Feb. 5, 2018), https://www.fool.com/investing/2018/02/05/wells-fargos-harsh-penalty-could-be-a-game-changer.aspx.
[38] Wells Fargo, Wells Fargo Stories, https://stories.wf.com/betterbank (last visited Apr. 5, 2019).
[39] Id.
[40] See generally, Wells Fargo, Wells Fargo – Transforming For The Future, (Mar 2019), https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/presentations/2019/proxy-presentation.pdf.
[41] Tomi Kilgore, Wells Fargo To Launch New Marketing Campaign To Rebuild Customer Trust, Marketwatch (Jan. 24, 2019), https://www.marketwatch.com/story/wells-fargo-to-launch-new-marketing-campaign-to-rebuild-customer-trust-2019-01-24.
[42] Id.
[43] Julia Horowitz, Wells Fargo CEO Tim Sloan Faces An Angry Congress, CNN (Mar. 12, 2019), https://www.cnn.com/2019/03/12/investing/tim-sloan-wells-fargo-hearing/index.html.
[44] Id.
[45] Natasha Frost, Wells Fargo CEO Tim Sloan Quits, Just As Elizabeth Warren Demanded, Quartz (Mar. 28, 2019), https://qz.com/1583217/elizabeth-warren-gets-her-man-wells-fargo-ceo-tim-sloan-quits/.
[46] Id.
[47] Id.
[48] Son & Rooney, supra note 14.
[49] Id.
[50] Egan, supra note 13.
[51] Hugh Son, Here’s Who Could Replace Tim Sloan As CEO Of Wells Fargo, CNBC(Mar. 29, 2019), https://www.cnbc.com/2019/03/29/heres-who-could-replace-tim-sloan-as-ceo-of-wells-fargo.html.
[52] Id.
