Wells Fargo’s ‘Living Will’ Plan Is Rejected Again by Regulators
nytimes.com
nytimes.com
Wells Fargo settled this issue with some regulatory bodies by either admitting or not contesting the charges and paying record fines. But they did not settle with all of their regulators.
These crimes are heinous enough to warrant a RICO case against WF. Many C-suite people plainly knew and encouraged or stood silent and should go to jail.
Due to the size of WF and the length of time it has gone on, this cancerous culture has spread, to some degree, to every other retail bank, but we can still eliminate individuals who are obviously morally corrupt using a very simple filter. The entire mid- and senior-level leadership of WF Retail for the affected time period from Branch Manager on up should be barred from ever working in banking again. WF only promoted people who actively and enthusiastically engaged in fraud and we should have little sympathy or compassion for people like that.
The retail bank should have its banking license revoked, which would result in the entire holding company being pushed into bankruptcy and the non-retail divisions sold off in a (semi)orderly fashion, if only to make an example to the rest of the industry. Great care should be taken that this doesn't turn into a Lehman-level fiasco that imperils the entire economy, but the punishment should fit the crime, and, at the minimum, bondholders should lose money. That is really the only way we can save our modern capitalism from itself.
If WF goes under and takes their customers down as well, then we didn't really solve the problem. Put another way, you end up punishing the people who had nothing to do with the crimes rather than those that committed the crimes in the first place
It should. Otherwise the rest of us are paying for it.
"Customers" are either lending to or borrowing from the bank. If it's the former, it's usually safe...but not 100%. If the bank fails to pay you back, that's your problem, is it not?
No, WFC is solvent, so nobody has to pay for anything.
In a bankruptcy, customers, the people depositing money in the bank, are first in line, then bondholders (first senior, then junior) and finally stockholders. Fludlight was proposing forcing WFC into bankruptcy as a punishment. Stockholders would lose all their money and bondholders lose part; customers would get their deposits back, I imagine.
> If the bank fails to pay you back, that's your problem, is it not?
In a free market, yes. But fractional reserve banks in a free market are vulnerable to bank runs because they engage in maturity transformation (borrow short, lend long). That is an unstable situation: an unsubstantiated rumor can start a bank run which would lead to a collapse of the bank. To remedy that, the government usually guarantees deposits up to a certain amount (in the US, FDIC guarantees up to $250,000).
The market cap of WFC is 275 billion dollar. Pushing it into bankruptcy where even bondholders lose money implies that stockholders would lose all their money (since they are in line behind bondholders). I do not think that would be fair to stockholders (among which are pension funds). Selling off divisions would almost certainly lead to more concentration in the banking sector and more job losses at the lower level. I do not think that would solve anything.
How is it not fair? Why should they bear no responsibility in the behavior of something they are funding? They should indeed lose money for being reckless in their investment.
The alternative is to let the rest of society, that has no stake in the company, bear the cost of their toxic activity. How is it more fair than making stockholders pay?
I do not think destroying the complete company as a deterrent will help. That will not deter executives which will still be making money hand over fist. It will however deter investors in investing in companies in general.
I think a better way to address this situation is by reimbursing affected customers (which has mostly happened AFAIKT), compensating wrongly fired employees, disciplining the responsible executive (by firing and clawing back their compensation, which has happened partly). Improved oversight (internal/external) and whistleblower procedures should also be instated.
If an individual commits one count of Social Security fraud they would pay a fine of $10,000 or about 20% of the median household income. [2] (This is an arbitrarily picked form of financial fraud)
If the bank had a proportional punishment they would pay 20% of their annual revenue for systemic fraud, which would be roughly $18 billion dollars.
[1] https://www.wellsfargo.com/about/investor-relations/investme... [2] https://www.reference.com/government-politics/penalties-comm...
edit: used quarterly instead of annual figure for calculation
I'm not convinced you can compare personal law and corporate law. The fact that it's a fixed fine in personal law, regardless of income/wealth doesn't seem fair. Also, if you want to extend the analogy maybe it would be more appropriate to take 20% of profits? 20% of revenue it much easier for Apple to stomach than Walmart, because of higher margins. But then what do you do with companies that don't make a profit...
The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list if they didn't make sales quotas that proved nearly impossible without the opening of fake accounts. Essentially, WF used the industry fraud blacklist as a punishment for employees unwilling to commit fraud.
The second malevolent practice was using the company ethics line as a kind of honeypot to discredit and fire potential employees who wanted to report opening fake accounts on clients' behalf.
http://www.npr.org/sections/money/2016/10/07/497084491/episo...
http://www.npr.org/sections/money/2016/10/28/499805238/episo...
Here's an example of the standard process: http://www.hsbc.co.uk/1/2/switching-to-hsbc
If a CU wants my business, they should have a branch that's open till 8 or 9pm, open saturday and sunday, and have plenty of ATMs throughout town. That's a start, then they can have at least everything WF offers, such as linked credit and home equity accts. They should innovate, not lag behind.
As for the number of ATMs, both credit unions that I belong to are part of the sum network (free reciprocal ATM access) and actually reimburse me for fees that off network ATMs might charge.
After years of getting slammed by big banks with excessive fees when cash was tight and balance ran low, I came to appreciate using an institution whose goal is not to profit off of me however they can.
FWIW I went to Chase Bank. I'm not happy, I'm not sad. Banking is as exciting as a loaf of bread. The less I interact with a bank and the humans at a bank, the happier I am.
The scariest part was, after a couple months and no spending, the bank said to close my account I had to write a check to myself for the exact balance in my account. Once cashed, and the account hit $0, it would close automatically. I was terrified of overdrafting or undershooting it by 1 cent or something.
I don't know if this abuse is enough to warrant regulation of the way the finance industry operates the blacklist but perhaps it's worth considering. I'm not sure how you could retain the obvious benefits of the blacklist while preventing abuse though. Perhaps require that only illegal/fraudulent behavior as a permissible reason?
I don't know enough about the industry to really offer meaningful suggestions that won't have catastrophic unintended consequences but abuse of employees by their employers makes me incredibly angry.
Are you referring to a U5? That would be ironic because I believe that all of the retail employees that were fired now have a huge red flag on their U5 which means it will really difficult to get a job in the industry going forward.
But we want the CEO to go to jail?
When people in the financial world do "wrong", they go on a list. The dispute here isn't about the list, it's about whether they did "wrong" (which appears they didn't).
I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Presumably, C-suite people are compensated based on the financial performance of the bank so they would be motivated to encourage subordinates to commit frauds that drove that performance.
The fake account frauds didn't. The whole reason they were able to get away with it for so long despite the number of accounts is that most of these were no-fee accounts. The people whose identity was stolen to open them never saw a bill or a statement related to the account which is why they never noticed. However that also means that WF didn't actually benefit from the fraud.
The retail level employees and their immediate supervisors were incentivised based on number of opened accounts, regardless of any revenue produced from them, which is why they did this in the first place.
Huge bonuses based on performance metrics? WF executives were given 100s of millions in bonuses during this period of fraud.
They were. Many of their performance incentives would have also been tied to WF stock values, which were greatly inflated due to WF's higher than industry average cross sell metrics. Although as you observed many of the accounts were no-fee the company's stock benefitted from these non-revenue improvements
Matt Levine, as usual, has a very coherent summary of it:
https://www.bloomberg.com/view/articles/2016-09-09/wells-far... https://www.bloomberg.com/view/articles/2016-09-19/tough-tar...
RICO is used to target criminal organizations. There is no evidence whatsoever that the employees who were ripping off WF conspired with each other.
You are literally blaming the victim here.
The article quotes:
"Wells Fargo has strict quotas regulating the number of daily "solutions" that its bankers must reach; these "solutions" include the opening of all new banking and credit card accounts. Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas. Managers often tell employees to do whatever it takes to reach their quotas. Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time, and/or are threatened with termination.
"The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means."
This reads to me like damning culpability. Then he says, "But obviously no one in senior management wanted this." Well of course they don't, now that they've been caught! But it was a pretty good scheme at the time raking in millions of dollars.
If an underperforming employee earned $450 in pay that they did not deserve, WF lost money on this. As matt levine explains:
If your customers have a checking account, and a savings account, and a credit card and online banking, all in one place, then they'll probably use each of those products more...when they want a...mortgage...or investment advice -- they're more likely to turn to the bank where they keep the rest of their financial life...No one feels extra loyalty because they have a banking product that they don't use or know about.
In website terms, this is roughly equivalent to the head of marketing buying fake traffic so he can tell his boss that he did a good job with SEO and ask for a raise.
This ignores the fact that Wells Fargo is a publicly traded company and has an incentive to make their numbers look good for their shareholders.
... And to be clear, your assertion is that thousands of employees across different branches all independently decided to commit fraud and risk their jobs all for an additional 450 per pay check? That is your alternative explanation?
I agree that Wells Fargo ULTIMATELY didn't benefit much from this mess. Your linked article explains this situation thusly:
> fraud is sometimes an emergent property of complex institutions, and that there can be widespread misbehavior at a bank without senior management approving it, or knowing about it, or wanting it.
Fair enough, good metrics are difficult to find and the managers of huge organizations are basically playing a billion dollar version of the blind men and the elephant.
However, I think this explanation ignores two critical things:
1) Wells Fargo DID benefit from the wide-scale fraud in the short run, because juicing the metrics boosted the stock price and generally made senior management look good.
2) Many employees claim that they reported the fraud to internal ethics watchdogs, who should have nothing to gain by perpetuating the scam, only to be ignored or retaliated against for doing so.
I think these facts totally discredit the "lazy employees cheating their employer" narrative and set up an "assholes or idiots" situation for senior management.
But I'm replying to a post alleging that RICO should be used - essentially claiming that WF is the equivalent of a mafia front and that the CEO is basically Tony Soprano. That's what I'm arguing against.
Which one is really Wells Fargo? That's not a question with a real answer unless you specify why you're asking. From the perspective of an investor it would be wise to treat upper management as the real Wells Fargo. But for a customer the fraudy bits are the ones you're interacting with.
I'm reminded of "will no one rid me of this troublesome priest" ( https://en.wikipedia.org/wiki/Thomas_Becket ). Not specifically asking that someone be murdered, but implying from a position of power that it's something you really want to happen.
Similarly setting up an incentive system with targets that are unmeetable without unethical practices then looking the other way when those practices happen implies a certain amount of complicity. It's just really hard to prove, which is the intention, and why some offences are "strict liability".
Not to mention that the use of punishment for not meeting unmeetable targets is not the same as not giving out bonuses for not meeting them.
Why do you think only WF as seen this? They simply are the tall poppy that went a bit too far.
The high metrics that purposefully cause employee turnover due to not being long-term sustainable are more or less industry standard. These policies always lead to at least some low-level fraud trying to game the numbers by the retail level folks, but usually it's a dull roar and more an annoyance that easily gets eclipsed by the additional sales benefit.
And not even the banking industry. The retail service industry. It's simply how the game is played these days, Wells Fargo wasn't much interesting in this respect, they were just ham fisted and clumsier than most.
If you ask any retail bank employee working at Wells Fargo vs. any of the other retail majors wasn't a much different experience. Working as a retail banker is also much more like working as a manager of Instant Oil Change selling upsells than an investment banker deciding where to invest. I think you'll find most folks prefer the Wells Fargo job over other majors; at least my friends who were bank tellers/retail bank managers did.
As a person who isn't a shareholder, I look at this the same way I look at other companies I don't own (e.g. Knight Capital, Yahoo) being mismanaged: ¯\_(ツ)_/¯
Not to mention that the use of punishment for not meeting unmeetable targets is not the same as not giving out bonuses for not meeting them.
Either way, regardless of whether they got caught or not, WF lost money on this. It's a screwup that harms them, not a criminal conspiracy as the parent poster alleged.
https://www.bloomberg.com/view/articles/2016-11-03/banking-v...
Later information makes clear that managers found out about this behavior, at the very least abided, and even fired employees who complained.
Even after carefully following the senior managers in charge of Wells Fargo's bad sales practices, the story still feels like one of cultural diffusion, of anonymous ancient peoples moving across the land and leaving archaeological traces of their passage, like stone tools and animal bones and unwanted debit cards.
It points out that there was probably no conspiracy, no explicit instructions, and that the whole thing was unprofitable:
It seems unlikely that he ever told anyone to open any fake accounts; certainly there's no evidence that he did. It doesn't even seem like he had much reason to want the fake accounts, which after all were not profitable.
What is the "different picture" you think this article paints?
At the C-level there aren't great incentives for the accounts. There's an argument to be made that metrics can boost stock price, but whatever. At the branch management level though, there are definitely incentives to not shutting down the practices, after managers found out about them. Even if there aren't explicit instructions, if managers don't disallow the practice after they discover it, that indicates WF involvement beyond the individuals who actually opened the accounts. Furthermore, firing individuals who complain about the fake account practice is a clear example of corporate culpability in this scandal.
Sure, this might not meet conspiracy standards. But it's hard to unilaterally paint the bank as a victim, when there's so many organs to the bank.
I agree with you that if the firings happen as alleged, that's a problem. But note Matt Levine's skepticism, which I share:
But I wonder how many of the 5,300 people fired by Wells Fargo for creating fake accounts now claim that they were actually fired in retaliation for refusing to create fake accounts?...Everyone I've seen or heard interviewed about the scandal describes seeing people create fake accounts, but not doing it themselves.
By describing the bank as a victim, I meant the shareholders.
There's no excuse for a financial institution to not have policies and processes to prohibit, prevent and detect misaligned incentives put in place by sales organizations/departments/teams within the institution. No one wants to mess with their sales organizations without being legally compelled to since they're the ones generating income but financial institutions have a special responsibility and obligation to society to not fuck things like this up.
[1] Stress Test https://www.amazon.com/Stress-Test-Reflections-Financial-Cri... [2] Too Big To Fail http://amzn.to/2hvIZ1w
Too Big To Fail spends much of its time in the lead up to the crisis, and documentation of the handling of the crisis by the major participants.
Stress Test reviews the handling of the crisis, but speaks much to the aftermath and handling over the following four years.
Both are also great on audible, as Geitner reads his own book (which I always prefer, no matter the quality of the orator).
"70% of the financial world's cost is regulation, 20% for the tech sector"
One of the make reasons the federal government is sometimes less effective than we want, is that the powerful and paranoid want it that way. They put hurdles in the way of government that would make any corporation very foul, and then they blame the government for being slow.
Sure, the government is special because it has the power to compel citizens, but that's what it's /for/. We can't do without it. (Well, the bottom 99.9% can't)
I'm not particularly powerful nor paranoid, but I also like there being checks and balances on the government. I shouldn't really need to explain why that is.
What we're seeing lately isn't the operation of checks and balances, it's a mix of partisan obstructionism, officials across both parties deferring to donors, and officials being out of touch with "the 99%" (most members of Congress are millionaires and get VIP treatment from various companies, such as expedited customer service).
This is just a negatively connoted way of describing one of the most fundamental checks and balances we have. Politicians are supposed to obstruct each other. If it's not a manifestly good idea, it's generally better if they don't do it.
Yeah, that'll show those Wells Fargo bankers. They could cause the loss of billions of dollars and millions of people's livelihoods, but gosh darn, they can't establish new international units or acquire subsidiaries in some cases.
I consider that commensurate punishment, and on par with people selling a few hundreds dollars in drugs going to jail for decades.
Wells Fargo also signed up customers for life insurance policies without their knowledge or permission.
http://money.cnn.com/2016/12/12/investing/wells-fargo-insura...
That's not going to cut it. If you can't source it, don't say it.
[1] https://commercial.jpmorganchase.com/pages/commercial-bankin...
[2] http://www.salon.com/2016/12/01/house-bill-would-relax-bank-...
[3] http://money.cnn.com/2016/12/06/investing/wells-fargo-trump-...
Citation needed.
It wasn't a vague reference to start a rumor or anything like that.
Socialise the costs, privatise the profits.