Tag Archives: Wells Fargo

Seattle Crawls Back To Wells Fargo Because No Other Bank Wants Their Business

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Dakota Access Pipeline protesters chant outside of the Wells Fargo Bank at Westlake Center in January 2017. The city of Seattle has renewed its contract with Wells Fargo, after it could get no other takers for its banking business. (Lindsey Wasson / The Seattle Times)

Seattle split with Wells Fargo a year ago in protest over the bank’s investments in the Dakota Access Pipeline and fraud scandals. But the two are together again after the city could find no other bank to take its business.

The city of Seattle will keep banking with Wells Fargo & Co. after it could get no other takers to handle the city’s business.

The City Council in February 2017 voted 9-0 to pull its account from Wells Fargo, saying the city needs a bank that reflects its values.

Council members cited the bank’s investments in the Dakota Access Pipeline, as well as a roiling customer fraud scandal, as their reasons to sever ties with the bank.

Some council members declared their vote as a move to strike a blow against not only Wells Fargo, but “the billionaire class.”

“Take our government back from the billionaires, back from [President] Trump and from the oil companies,” Council member Kshama Sawant said at the time.

The contract was set to expire Dec. 31, but as finance managers for the city searched for arrangements to handle the city’s banking, it got no takers, said Glen Lee, city finance director. That was even after splitting financial services into different contracts to try to attract a variety of bidders, including smaller banks.

In the end, there were none at all.

It became clear this was our best and only course of action,” Lee said of the city’s decision to stick with Wells Fargo after all.

The first sign that it would be hard to make the council’s wish a reality came soon after the vote when Wells Fargo too-hastily informed the city it could sever its ties immediately with no penalty for breaking the contract. The bank even promised to help the city find a new financial partner.

But it quickly became clear how hard that would be as the city reworked its procurement specifications and searched for months.

Source: By Lynda Mapes | Seattle Times

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Wells Fargo Agrees To Pay $480 Million To Shareholders Over Fake Accounts Suit

This settlement is on top of the recent $1 billion fine for mortgage lending and auto insurance abuses.

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The bank announced Friday afternoon that it reached a new settlement over its sales practices and will pay $480 million to a group of shareholders who accused the bank of making “certain misstatements and omissions” in the company’s disclosures about its sales practices.

The settlement stems from actions originally taken in 2016 by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the city and county of Los Angeles to fine the bank $150 million for more than 5,000 of the bank’s former employees opening as many as 2 million fake accounts in order to get sales bonuses.

The action led to a class action lawsuit brought on behalf of the bank’s customers who had a fake account opened in their name.

That lawsuit led to a $142 million fake accounts class action settlement that covers all people who claim that Wells Fargo opened a consumer or small business checking or savings account or an unsecured credit card or line of credit without their consent from May 1, 2002 to April 20, 2017.

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But that wasn’t the only legal battle that Wells Fargo was facing.

According to the bank, a putative group of the bank’s shareholders also sued the bank in U.S. District Court for the Northern District of California, alleging the bank committed securities fraud by not being wholly honest in its statements about its sales practices.

Despite stating that it denies the claims and allegations in the lawsuit, Wells Fargo is choosing to settle the case and will pay out $480 million, assuming the settlement amount is approved by the court.

According to the bank, it reached the agreement in principle to “avoid the cost and disruption of further litigation.”

This settlement is also separate from the recent $1 billion fine handed down against the bank by the CFPB and the OCC for mortgage lending and auto insurance abuses.

The bank stated that the new settlement amount of $480 million has been fully accrued, as of March 31, 2018.

“We are pleased to reach this agreement in principle and believe that moving to put this case behind us is in the best interest of our team members, customers, investors and other stakeholders,” Wells Fargo CEO Tim Sloan said in a statement. “We are making strong progress in our work to rebuild trust, and this represents another step forward.”

Source: By Ben Lane | Housing Wire

Wells Fargo Just Reported Their Worst Mortgage Numbers In Five Years

When ZH reported Wells Fargo’s Q4 earnings back in January, they drew readers’ attention to one specific line of business, the one they dubbed the bank’s “bread and butter“, namely mortgage lending, and which as they then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled. Specifically in Q4 Wells’ mortgage applications plunged by $10bn from the prior quarter, or 16% Y/Y, to just $63bn, while the mortgage origination pipeline dropped to just $23 billion”, and just shy of the post-crisis lows recorded in late 2013.

Fast forward one quarter when what was already a grim situation for Warren Buffett’s favorite bank, has gotten as bad as it has been since the financial crisis for America’s largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (modest EPS and revenue beats), Wells just reported that its ‘bread and butter’ is virtually gone, and in Q1 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline failed to rebound, and remained at $24 billion, the lowest level since the financial crisis.

Yet while the mortgage pipeline has not been worse since in a decade despite the so-called recovery, at least it has bottomed. What was more troubling is that it was Wells’ actual mortgage applications, a forward-looking indicator on the state of the broader housing market and how it is impacted by rising rates, that was even more dire, slumping from $63BN in Q4 to $58BN in Q1, down 2% Y/Y and the the lowest since the financial crisis (incidentally, a topic we covered just two days ago in “Mortgage Refis Tumble To Lowest Since The Financial Crisis, Leaving Banks Scrambling“).

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Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was nearly as bad, plunging $10BN sequentially from $53 billion to just $43 billion, the second lowest number since the financial crisis. Since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates continue to rise.

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Adding insult to injury, as one would expect with the yield curve flattening to 10 year lows just this week, Wells’ Net Interest margin – the source of its interest income – failed to rebound from one year lows, and missed consensus expectations yet again. This is what Wells said about that: “NIM of 2.84% was a stable LQ as the impact of hedge ineffectiveness accounting and lower loan swap income was offset by the repricing benefit of higher interest rates.” But we’re not sure one would call this trend “stable” as shown visually below:

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There was another problem facing Buffett’s favorite bank: while NIM fails to increase, deposits costs are rising fast, and in Q1, the bank was charged an average deposit cost of 0.34% on $938MM in interest-bearing deposits, exactly double what its deposit costs were a year ago.

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And finally, there was the chart showing the bank’s consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $9.5BN sequentially across all product groups, far more than the $1.7BN decline last quarter.

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What these numbers reveal, is that the average US consumer can not afford to take out mortgages at a time when rates rise by as little as 1% or so from all time lows. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.

***
Wells Fargo Advisors continues to bleed reps

In the latest quarter, the broker-dealer suffered a net loss of 145 brokers

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Source: Zero Hedge | Wells Fargo Earnings Supplement

 

Fed Halts Wells Fargo’s Growth amid Endless Waves of Reckless Abandon

Is this what a “soft nationalization” looks like?

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The Federal Reserve on Friday announced it was forcing Wells Fargo to oust board members and limit its growth, responding to a wave of abuses at the San Francisco giant that include opening accounts for customers who didn’t request them.

In the last major move of Chairwoman Janet Yellen’s reign at the central bank, the Fed said it won’t let Wells Fargo WFC, -6.21%  add assets beyond the level of the end of 2017 until it improves governance and controls. Wells Fargo ended 2017 with $1.95 trillion in assets.

Wells Fargo will be able to continue current activities including accepting customer deposits or making consumer loans, the Fed said.

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” Yellen said in a statement. “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”

The asset cap is unprecedented, according to Federal Reserve officials.

Federal Reserve officials didn’t say it was specifically planned for Yellen’s last day — and they said the bank agreed to the terms on Friday afternoon.

The Fed cited not only the millions of customer accounts Wells Fargo opened without authorization but also more recent revelations that the bank charged hundreds of thousands of borrowers for unneeded guaranteed auto protection or collateral protection insurance for their automobiles.

Screwed by Wells Fargo

Wells Fargo will replace three current board members by April and a fourth board member by the end of the year, the Fed said. Sen. Elizabeth Warren, the Massachusetts Democrat, had requested the Fed oust Wells Fargo board members. The Fed didn’t identify which board members will have to leave.

The Fed also singled out Stephen Sanger, the former lead independent director, and former CEO John Stumpf with letters excoriating them for the abuses.

The vote for the sanctions was 3-0, with the incoming chairman, Jerome Powell, joining Yellen and Gov. Lael Brainard. The new vice chairman for regulation, Randal Quarles, abstained.

Quarles previously said he would recuse himself from Wells Fargo matters because he and his family previously had a financial interest in the bank.

In after-hours trade late Friday, Wells Fargo shares dropped over 5%.

Source: By Steve Goldstein | MarketWatch

Pittsburgh Mall Once Worth $190 Million Sells For $100

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We have frequently noted the precarious state of the U.S. mall REITs (see “Myopic Markets & The Looming Mall REITs Massacre” and “Is CMBS The Next “Shoe To Drop”? GGP Sales Suggest Commercial Real Estate Crashing“), but the epic collapse of the Galleria at Pittsburgh Mills paints a uniquely horrific outlook for mall operators.  The 1.1 million square foot mall, once valued at $190 million after being opened in 2005, sold at a foreclosure auction this morning for $100 (yes, not million…just $100).  According to CBS Pittsburgh, the mall was purchased by its lender, Wells Fargo, which credit bid it’s $143 million loan balance, which was originated in 2006, to acquire the property.

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Like many malls around the country, Pittsburgh Mills has suffered the consequences of weak traffic amid tepid demand from the struggling U.S. consumer resulting in massive tenant losses.  According to the Pittsburgh Tribune, the mall is only 55% occupied and was last appraised for $11 million back in August. 

The value of the mall has been plummeting since it opened in July 2005. Once worth $190 million, it was appraised at $11 million in August.

The mall has lost a number of key tenants over the years, including a Sears Grand store. The mall’s retail space is nearly half empty, with about 55 percent occupied.

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Of course, New York Fed President Bill Dudley laid out a very compelling case for retailers yesterday if he can just convince American homeowners to commit the same mistakes they made back in 2006 by repeatedly withdrawing all of the equity in their homes to fund meaningless shopping sprees.  So it’s probably safe to keep buying those mall REITs…after all those 3% dividend yields are amazing alternatives to Treasuries and you’re basically taking the same risk…assuming you overlook the billions of property-level debt that ranks senior to your equity position.

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Source: ZeroHedge

How Rising Rates Are Hurting America’s Largest Mortgage Lender, In One Chart

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While one can argue that both JPM and Bank of America posted results that were ok, with some aspects doing better than expected offset by weakness elsewhere, even if moments ago JPM stock just hit an all time high, there was little to redeem the report from the scandal-ridden largest mortgage lender in America, Wells Fargo. Not only did the company miss revenues significantly, reported $21.6bn in Q4 top line, nearly $1 bn below the $22.4bn consensus, but it had to reach deep into its non-GAAP adjustment bag to convert the $0.96 EPS miss into a $1.03 EPS beat (net of “accounting effect”), but the details of its core business were, well, deplorable, which perhaps was to be expected following the recent drop in new credit card and bank account growth, following last year’s fake account scandal.

Incidentally, Wells Fargo reported its latest customer metrics alongside 4Q earnings, and in December the bank said that the retail public continued to shy away, as new checking accounts plunged 40%Y/Y while new credit card applications tumbled 43%.  On the other hand, deposit balances debit card transactions continued growing which probably is not a good sign, if only for the Keynesians in the administration: it means that consumers are saving.

But back to Wells results, which revealed that in Q4, the bank’s ROE, one of Buffett’s favorite indicators, fell to 10.94%. which was the lowest quarterly level posted in years according to the WSJ. “While the return had been grinding lower for some time, largely due to the declining interest-rate environment, the fourth quarter also marked the first, full reporting period since the bank’s sales-tactics scandal erupted in September.”

More troubling however, was that in Q4, Wells overall profit fell to $5.27 billion, or 96 cents a share (excluding the various non-GAAP addbacks, down from $5.58 billion, or EPS of $1 in Q4 2015.

So back to Wells Fargo’s retail banking business. Here the bank reported that while credit cards outstanding rose 5% compared to $33.14 billion last quarter and jumped 8% from $34.04 billion in the year-earlier period, new accounts tumbled 52% to 319,000 from 667,000 last quarter and fell 47% from 597,355 in the year-earlier period, once again this is a reflection of the bank’s ongoing legal scandals.

But it was the bank’s bread and butter, mortgage lending, that was the biggest alarm because as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, and after hitting multi-year highs in the third quarter when mortgage rates were likewise hugging multi-year lows, in Q4 Wells’ mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014. Moynihan’s explanation was redundant: “the pipeline is weaker because of fewer refi loans.” This should not come as a surprise: just one month ago, Freddie Mac warned that as mortgage rates continue to surge, “expect mortgage activity to be significantly subdued in 2017.”

Wells Fargo did not even have to wait that long, and as shown in the chart below, the biggest US mortgage lender is already suffering.

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Expect even greater declines in the coming quarters should rates continue to rise.

By ZeroHedge

The Subprime Mortgage Is Back: It’s 2008 All Over Again!

Apparently the biggest banks in the US didn’t learn their lesson the first time around…

Because a few days ago, Wells Fargo, Bank of America, and many of the usual suspects made a stunning announcement that they would start making crappy subprime loans once again!

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I’m sure you remember how this all blew up back in 2008.

Banks spent years making the most insane loans imaginable, giving no-money-down mortgages to people with bad credit, and intentionally doing almost zero due diligence on their borrowers.

With the infamous “stated income” loans, a borrower could qualify for a loan by simply writing down his/her income on the loan application, without having to show any proof whatsoever.

Fraud was rampant. If you wanted to qualify for a $500,000 mortgage, all you had to do was tell your banker that you made $1 million per year. Simple. They didn’t ask, and you didn’t have to prove it.

Fast forward eight years and the banks are dusting off the old playbook once again.

Here’s the skinny: through these special new loan programs, borrowers are able to obtain a mortgage with just 3% down.

Now, 3% isn’t as magical as 0% down, but just wait ‘til you hear the rest.

At Wells Fargo, borrowers who have almost no savings for a down payment can actually qualify for a LOWER interest rate as long as you go to some silly government-sponsored personal finance class.

I looked at the interest rates: today, Wells Fargo is offering the exact same interest rate of 3.75% on a 30-year fixed rate, whether you have bad credit and put down 3%, or have great credit and put down 30%.

But if you put down 3% and take the government’s personal finance class, they’ll shave an eighth of a percent off the interest rate.

In other words, if you are a creditworthy borrower with ample savings and a hefty down payment, you will actually end up getting penalized with a HIGHER interest rate.

The banks have also drastically lowered their credit guidelines as well… so if you have bad credit, or difficulty demonstrating any credit at all, they’re now willing to accept documentation from “nontraditional sources”.

In its heroic effort to lead this gaggle of madness, Bank of America’s subprime loan program actually requires you to prove that your income is below-average in order to qualify.

Think about that again: this bank is making home loans with just 3% down (because, of course, housing prices always go up) to borrowers with bad credit who MUST PROVE that their income is below average.

[As an aside, it’s amazing to see banks actively competing for consumers with bad credit and minimal savings… apparently this market of subprime borrowers is extremely large, another depressing sign of how rapidly the American Middle Class is vanishing.]

Now, here’s the craziest part: the US government is in on the scam.

The federal housing agencies, specifically Fannie Mae, are all set up to buy these subprime loans from the banks.

Wells Fargo even puts this on its website: “Wells Fargo will service the loans, but Fannie Mae will buy them.” Hilarious.

They might as well say, “Wells Fargo will make the profit, but the taxpayer will assume the risk.”

Because that’s precisely what happens.

The banks rake in fees when they close the loan, then book another small profit when they flip the loan to the government.

This essentially takes the risk off the shoulders of the banks and puts it right onto the shoulders of where it always ends up: you. The consumer. The depositor. The TAXPAYER.

You would be forgiven for mistaking these loan programs as a sign of dementia… because ALL the parties involved are wading right back into the same gigantic, shark-infested ocean of risk that nearly brought down the financial system in 2008.

Except last time around the US government ‘only’ had a debt level of $9 trillion. Today it’s more than double that amount at $19.2 trillion, well over 100% of GDP.

In 2008 the Federal Reserve actually had the capacity to rapidly expand its balance sheet and slash interest rates.

Today interest rates are barely above zero, and the Fed is technically insolvent.

Back in 2008 they were at least able to -just barely- prevent an all-out collapse.

This time around the government, central bank, and FDIC are all out of ammunition to fight another crisis. The math is pretty simple.

Look, this isn’t any cause for alarm or panic. No one makes good decisions when they’re emotional.

But it is important to look at objective data and recognize that the colossal stupidity in the banking system never ends.

So ask yourself, rationally, is it worth tying up 100% of your savings in a banking system that routinely gambles away your deposits with such wanton irresponsibility…

… especially when they’re only paying you 0.1% interest anyhow. What’s the point?

There are so many other options available to store your wealth. Physical cash. Precious metals. Conservative foreign banks located in solvent jurisdictions with minimal debt.

You can generate safe returns through peer-to-peer arrangements, earning up as much as 12% on secured loans.

(In comparison, your savings account is nothing more than an unsecured loan you make to your banker, for which you are paid 0.1%…)

There are even a number of cryptocurrency options.

Bottom line, it’s 2016. Banks no longer have a monopoly on your savings. You have options. You have the power to fix this.

by Simon Black | ZeroHedge