Tag Archives: Wells Fargo

Wells Just Reported Their Worst Mortgage Number Since The Financial Crisis

(Wells Fargo Earnings Supplement) When ZeroHedge reported Wells Fargo’s Q3 earnings back in October, they drew readers’ attention to one specific line of business, the one they have repeatedly 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, sliding just shy of the post-crisis lows recorded in late 2013.”

Well, unfortunately for Wells, despite the sharp drop in yields in Q4 which many had expected would boost mortgage lending or at least refi activity for the bank that was until recently America’s largest mortgage lender, the decline in mortgage activity has continued,  because buried deep in its presentation accompanying otherwise unremarkable Q4 results (modest EPS best; sizable revenue miss), Wells just reported that its ‘bread and butter’ is once again missing, and in Q4 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $18 billion, the lowest level since the financial crisis.

https://www.zerohedge.com/s3/files/inline-images/wells%20applications%20q4%202018.jpg?itok=KEVjN8iQ

Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was just as bad, dropping a whopping $12BN sequentially from $46 billion to just $38 billion, and effectively tied for the lowest print since the financial crisis.  Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.

https://www.zerohedge.com/s3/files/inline-images/Wells%20origiantions%20q4%202018.jpg?itok=26bJj1Sr

And since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates resume their rise.

Going back to the headline numbers, here is a recap of the key metrics:

  • 4Q adj. EPS $1.21, est. $1.19
  • 4Q revenue $20.98 billion, Exp. $24.7BN
  • 4Q net interest income $12.64 billion
  • 4Q loans $953.11 billion vs. $942.3 billion q/q
  • 4Q mortgage non-interest income $467 million
  • 4Q residential mortgage originations $38 billion
  • 4Q margin on residential held-for-sale mortgage originations 0.89%
  • 4Q non- performing assets $6.95 billion
  • 4Q net charge-offs $721 million, estimate $736.8 million (BD)
  • 4Q total avg. deposits $1.27 trillion

There was more bad news for Wells. First, as the chart below shows, Noninterest Income has been a disaster and is only getting worse with virtually every revenue category posting Y/Y declines.

https://www.zerohedge.com/s3/files/inline-images/wells%20noninterest%20income%20q4%202018.jpg?itok=6nAL-W9q

Things were not better on the interest income side where the bank’s Net Interest Margin managed ended its recent streak of increases, and was unchanged at 2.94% resulting in $12.644 billion in Net Interest Income, and missing expectations of an increase to 2.95%. This is what Wells said: “NIM of 2.94% stable LQ as a benefit from higher interest rates and favorable hedge ineffectiveness accounting results were offset by the impacts of all other balance sheet mix and lower variable income.

https://www.zerohedge.com/s3/files/inline-images/NIM%20Wells%20Q4%202018.jpg?itok=WF4DdIH5

While Wells loss provisions declined modestly in Q4, its actual charge-offs jumped from $680MM to $721MM, the highest since Q1.

https://www.zerohedge.com/s3/files/inline-images/Wells%20charge%20offs%20q4%202018.jpg?itok=E1Jkk2Lr

There was another problem facing Buffett’s favorite bank: while NIM failed to increase, deposits costs are rising fast, and in Q4, the bank was charged an average deposit cost of 0.55% on $914.3MM in interest-bearing deposits, double what its deposit costs were a year ago.

https://www.zerohedge.com/s3/files/inline-images/wells%20deposit%20cost%20q4%202018.jpg?itok=NBzR9GZt

There was a silver lining however: amid concerns over the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion, in Q4 Wells finally succeeded in getting a modest increase in deposits, which rose to $1.286 trillion, if still down 4% Y/Y. This was driven by growth in Wealth & Investment Management deposits driven by higher retail brokerage sweep deposits, “partially reflecting a change in our customers’ risk appetite, as well as higher private
banking deposits.” Offsetting this were declines in small business banking deposits, partially offset by growth in retail banking consumer deposits.

https://www.zerohedge.com/s3/files/inline-images/wells%20depositgs%20q4%202018.jpg?itok=sHfMWQmz

And some more good news: the recent ongoing shrinkage in the company’s balance sheet appears to have finally reversed, because one quarter after average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY, average loans outstanding increased fractionally to $946.3BN, up $6.8BN, or 1% Q/Q. This rebound was entirely due to commercial loans , which were up $7.7 billion LQ on higher commercial & industrial loans. Meanwhile, consumer loans continued to decline, and were down $835 million LQ as growth in nonconforming first mortgage loans and credit card loans was more than offset by declines in legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgage loans due to run-off and sales, as well as lower auto loans.

https://www.zerohedge.com/s3/files/inline-images/wells%20avg%20loans%20out.jpg?itok=JTJXxS5o

And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $13.7BN Y/Y across most product groups.

https://www.zerohedge.com/s3/files/inline-images/wells%20loans%20total%20q4%202018.jpg?itok=o07QLBIm

What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage even at a time when rates are once again sliding. 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.

Source: ZeroHedge

 

Advertisements

Wells Fargo: ‘Shareholders Can’t Sue Us Because They Should Have Known We Were Lying’

Wells Fargo is adopting an unusual defense against a shareholder lawsuit: claiming, essentially, that shareholders can’t hold the bank accountable for CEO Tim Sloan’s statements that it was “working to restore trust” and be “more transparent” about its scandals – because it should have been obvious that Sloan was lying.

The defense, which Wells Fargo put forth in a legal filing aimed at getting a shareholder lawsuit dismissed, relies on the legal concept of “puffery,” according to a Los Angeles Times report.

Generally, businesses engage in “puffery” when they make advertising claims that are vague or transparently untrue – a restaurant claiming it has “the world’s best burgers,” for instance. Judges and regulators have ruled that claims like that are so obviously inflated that consumers won’t take them seriously. Such claims aren’t actionable in court, the Times reported.

The thing is, “puffery” usually applies to out sized advertising claims. Wells Fargo is now claiming that the “puffery” defense should be applied to statements CEO Tim Sloan made to investors, and that a lawsuit filed by shareholders should be dismissed on those grounds.

The lawsuit stems from one of the bank’s many scandals – in particular the July 2017 revelation that Wells Fargo had for years been charging auto loan customers for unnecessary insurance. The lawsuit is seeking class certification for all investors who bought the company’s stock after Nov. 3, 2016, through Aug. 3, 2018, the Times reported.

It was on Nov. 3, 2016, that Sloan announced at an investor’s conference that he was “not aware” of any undisclosed scandals. In fact, Wells Fargo already knew that its improper auto insurance charges had pushed as many as 275,000 customers into delinquency and resulted in 25,000 improper repossessions. In fact, top bank executives allegedly knew of the problem as early as 2012, but took no action until 2016, according to the Times. Regulators have already slammed the bank for its inaction; earlier this year, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency fined Wells Fargo $1 billion for the auto-insurance scandal and a rash of improper mortgage fees.

The shareholder lawsuit focuses on efforts by Sloan and other Wells Fargo executives to conceal the auto-loan scandal, the Times reported. Wells Fargo execs were, at the time, already dealing with the bank’s massive fake-accounts scandal. They insisted that Wells Fargo would be “more transparent” about its scandals even while failing to disclose the auto-insurance issue.

During an investor call in January 2017, Sloan said that the bank wanted “to leave no stone un-turned. If we find something that’s important, we’ll communicate that.”

By that time, Sloan had already received an independent report on the auto-insurance scandal, the Times reported. The scandal did not become public, however, until the independent report was leaked to the media in July 2017.

The shareholder lawsuit contends that Wells Fargo lied about its intent to be transparency. Wells Fargo, however, maintains that Sloan’s statements were “puffery.” According to the bank’s legal filing, Sloan’s comments were generic statements “on which no reasonable investor could rely.”

“This is just another example of corporate actors making statements to the market, and then trying to avoid liability for the representations they made,” Darren Robbins, the attorney bringing the shareholder suit, told the Times.

Source: by Ryan Smith | Mortgage Professional America

Wells Fargo Just Reported Their Worst Mortgage Number Since The Financial Crisis

(ZeroHedge) When we reported Wells Fargo’s Q1 earnings back in April, we drew readers’ attention to one specific line of business, the one we dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, sliding just shy of the post-crisis lows recorded in late 2013.”

Then, a quarter ago a glimmer of hope emerged for the America’s largest traditional mortgage lender (which has since lost the top spot to alternative mortgage originators), as both mortgage applications and the pipeline posted a surprising, if modest, rebound.

However, it was not meant to last, because buried deep in its presentation accompanying otherwise unremarkable Q3 results (modest EPS miss; revenues in line), Wells just reported that its ‘bread and butter’ is once again missing, and in Q3 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $22 billion, the lowest level since the financial crisis.

Yet while the mortgage pipeline has not been worse 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 $67BN in Q2 to $57BN in Q3, down 22% Y/Y and the the lowest since the financial crisis (incidentally, a topic we covered recently in “Mortgage Refis Tumble To Lowest Since The Financial Crisis, Leaving Banks Scrambling“).

https://www.zerohedge.com/sites/default/files/inline-images/wells%20originations%20q3%202018.jpg?itok=Dbsxmy32

Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was nearly as bad, dropping  $4BN sequentially from $50 billion to just $46 billion. And 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.

https://www.zerohedge.com/sites/default/files/inline-images/wells%20mrg%20originations%20q3%202018.jpg?itok=r_bBgJv5

That said, it wasn’t all bad news for Wells, whose Net Interest Margin managed to post a modest increase for the second consecutive quarter, rising to $12.572 billion. This is what Wells said: “NIM of 2.94% was up 1 bp LQ driven by a reduction in the proportion of lower yielding assets, and a modest benefit from hedge ineffectiveness accounting.” On the other hand, if one reads the fine print, one finds that the number was higher by $80 million thanks to “one additional day in the quarter” (and $54 million from hedge ineffectiveness accounting), in other words, Wells’ NIM posted another decline in the quarter.

https://www.zerohedge.com/sites/default/files/inline-images/NIM%20wfc%20q3%202018.jpg?itok=gJVsqDb3

There was another problem facing Buffett’s favorite bank: while true NIM failed to increase, deposits costs are rising fast, and in Q3, the bank was charged an average deposit cost of 0.47% on $907MM in interest-bearing deposits, nearly double what its deposit costs were a year ago.

https://www.zerohedge.com/sites/default/files/inline-images/wells%20deposit%20costs.jpg?itok=JO34-sed

Just as concerning was the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion. This was driven by consumer and small business banking deposits of $740.6 billion, down $13.7 billion, or 2%.

https://www.zerohedge.com/sites/default/files/inline-images/wells%20deposits%20q3.jpg?itok=xouQsmDd

But even more concerning was the ongoing shrinkage in the company’s balance sheet, as average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY driven by “driven by lower commercial real estate loans reflecting continued credit discipline” while period-end loans slipped by $9.6BN to $942.3BN, as a result of “declines in auto loans, legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgages, as well as lower commercial real estate loans.”  This is a problem as most other banks are growing their loan book, Wells Fargo’s keeps on shrinking.

https://www.zerohedge.com/sites/default/files/inline-images/wells%20avg%20loans%20q3%202018.jpg?itok=2z7cvTpD

And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $11.3BN Y/Y across most product groups.

https://www.zerohedge.com/sites/default/files/inline-images/wells%20consumer%20loans%20q3%202018.jpg?itok=SH0tD3LV

What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage at a time when rates continued to rise – if not that much higher from recent 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.

Source: Wells Fargo Earnings Supplement |ZeroHedge

Wells Fargo Announces 10% Staff Cuts As CEO Struggles To Impress Analysts

As hopes for a steeper yield curve have lifted bank stocks, Wells Fargo CEO Tim Sloan is apparently trying to bolster Wells’ lagging share price as the numerous scandals that have tarnished the banks credibility and triggered fines, criminal probes and an unprecedented Fed sanction have continued to take their toll.

Per Bloomberg, Sloan is planning to trim its workforce by between 5% and 10% over the next three years with the explicit goal of propping up the company’s shares. While the cuts could provide the bank with necessary cover to purge bad apples from its employee ranks, they have also been broadly expected since the bank reported one of its worst-ever mortgage numbers as the division struggles under the yoke of Fed sanctions and with a housing market that is already beginning to roll over.

https://www.zerohedge.com/sites/default/files/inline-images/2018.09.21wells.JPG?itok=zyfrT_cDWells Fargo CEO Tim Sloan

In recognition of Wells’ collapse in mortgage lending, Sloan announced last month that the bank would lay off more than 600 employees from its mortgage division after losing the mantle of America’s top mortgage lender to non-bank fintech phenom Quicken Loans. Also, the fact that the housing market is beginning to roll over isn’t helping bolster the bank’s assets.

Sloan, who made the announcement to employees at a town-hall meeting on Thursday, has reduced headcount as he cleans up the bank and streamlines operations. The San Francisco-based lender is struggling to grow under the weight of a Federal Reserve assets cap. It had 265,000 employees as of June 30, according to a regulatory filing.

“It says something about the revenue environment for them,” Charles Peabody, an analyst at Portales Partners, said in an interview. “If they’re not in the midst of recognizing that revenues are in trouble, they’re anticipating it.”

Sloan has already promised $4 billion in cost cutbacks by the end of next year. The cuts announced Thursday have already been incorporated into the bank’s year-end expense targets for 2018, 2019 and 2020, according to the company.

“We are continuing to transform Wells Fargo to deliver what customers want – including innovative, customer-friendly products and services – and evolving our business model to meet those needs in a more streamlined and efficient manner,” Sloan said in a statement.

Wells shares have climbed 23% since Sloan took the reins in October 2016. However, it continues to lag the KBW Ban Index by 53%.

https://www.zerohedge.com/sites/default/files/inline-images/2018.09.21wellchart_0.jpg?itok=CJTGO48X

Meanwhile, analysts’ continued pessimism has sparked rumors that the bank’s board is seeking to oust Sloan. Earlier this year, reports circulated that they had approached Gary Cohn about taking over.

Analysts cut their estimates for Wells Fargo earnings again and again after the Fed punished the bank with an unprecedented cap on growing assets. The analysts began this year predicting a record $24 billion annual profit, and now the average estimate is for less than $21 billion, the weakest since 2012. Speculation that the bank wants a new CEO spilled into public this week when the New York Post said the board had approached former Goldman Sachs Group Inc. executive Gary Cohn. Cohn, who earlier this year finished a stint as a White House adviser, denied the report, as did Wells Fargo Chair Betsy Duke, who said Sloan “has the unanimous support of the board, and this support has never wavered.”

But with the bank unable to meaningfully expand its assets thanks to the Fed’s sanctions, Sloan has few alternatives aside from trimming head count and costs if he wants to impress the analysts. Expect more heads to roll in the near future.

https://i.imgur.com/49aCNlo.jpg

Source: ZeroHedge

Wells Fargo Tumbles After DOJ Review Found Widespread “Document Altering”

Another day, another scandal involving Warren Buffett’s favorite bank.

https://www.zerohedge.com/sites/default/files/inline-images/how%20low%20can%20fargo%20go_4.jpg?itok=_1tXYpFC

According to the WSJ, the DOJ is now probing whether employees committed fraud in Wells Fargo’s wholesale banking unit after revelations that employees improperly altered customer information. This follows a prior WSJ report that some employees in the unit added information on customer documents, such as Social Security numbers and dates of birth, without their consent.

Meanwhile, the bank’s own review discovered in recent months that in its wholesale banking group the problems were more widespread than previously thought: problems with altered documents initially centered in the part of the wholesale banking business called the business banking group, which focuses on companies with annual sales of $5 million to $20 million. Wells Fargo has found similar problems in its commercial banking division, which primarily serves middle-market companies, and its corporate trust services group, which helps with the administration of securities issued by companies and governments, one of the people said.

According to the Journal, employees altered the customer documents as Wells Fargo was rushing to meet a deadline to comply with a 2015 consent order from the Office of the Comptroller of the Currency.

The regulator had ordered the bank to beef up its anti-money-laundering controls, including its processes for ensuring that there are proper identification documents and that the bank has the ability to see client activities across a common database.

When the OCC issued the consent order, Wells Fargo had more than 100,000 customer accounts it needed to verify, the Journal previously reported. Wells Fargo in May formally asked the OCC for an extension beyond the initial June 30, 2018, deadline.

As a result, over the past year, the bank has been reaching out to thousands of clients requesting updated documentation on information such as relevant client addresses or dates of birth. Banks must have certain information, known as “know your customer” regulatory requirements, in order to keep banking their clients.

In other words, there was fraud everywhere, and then there was fraud to cover up the fraud..

https://twistedsifter.files.wordpress.com/2018/09/shirktember-3.gif?w=625

As the WSJ adds, the Justice Department is trying to learn if there is a pattern of unethical and potentially fraudulent employee behavior tied to management pressure. The employees in the wholesale banking unit, the side of the bank that deals with corporate customers, mishandled the documents last year and earlier this year.

The latest probe adds to the problems at Wells Fargo, whose reputation has been crushed since a sales scandal in its consumer bank imploded two years ago.

It also underscores how bad behavior has emerged throughout the bank and has continued even after the 2016 blow-up over sales practices. The bank’s problems have cascaded since then, with issues related to lofty sales goals and improper customer charges emerging across all of its major business units, prompting a range of other federal and state investigations.

The news of the latest probe sent Wells stock tumbling as investors wonder just how “low can Fargo go.”

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-06.jpg?itok=-N5YaFbx

Source: ZeroHedge

Why Does Wells Fargo Still Exist?

(HuffPost) Wells Fargo executives know that everyone hates them. In the last two years, the bank has launched three separate marketing campaigns hoping to clean up its public image, only to see each effort thwarted by fresh, catastrophic scandals ― like wrongly repossessing 27,000 cars and foreclosing on 400 families for no reason.

The bank’s latest quarterly filing with the Securities and Exchange Commission dedicates more than 2,000 words to “Additional Efforts To Rebuild Trust,” listing “automobile lending,” “mortgage interest rate lock extensions,” “consumer deposit account freezing/closing,” “certain activities within wealth and investment management,” “foreign exchange business,” “fiduciary and custody account fee calculations,” “mortgage loan modifications,” and “add-on products” as areas where the company may have been improperly seizing large sums of money that belong to other people. That section is followed by over 4,250 words on major legal liabilities the bank is currently facing.

Wells Fargo is even scamming rich people now, according to recent Yahoo Finance reporting, by intentionally steering high-net-worth clients into unnecessary products with high fees.

To any reasonable person, Wells Fargo is a rolling disaster ― a ripoff, wrapped in a swindle, inside a bank. And yet to a Wall Street investor, Wells Fargo looks like a pretty good bet. The bank has reported a combined $39.1 billion in profit since the final quarter of 2016. The Federal Reserve recently approved a 10 percent increase in the quarterly dividend the bank pays to its shareholders, allowing those profits to be converted into straight cash for its owners.

Wells Fargo’s very existence, not to mention its continued profitability, is an indictment of two decades of embarrassing regulatory oversight from four separate administrations. Ever since the 2008 financial crisis, the top minds in global finance have wondered whether the biggest U.S. banks are strong enough to withstand the next crash. But Wells Fargo reveals a different problem: a chronically dysfunctional, predatory bank that is perfectly profitable. It’s not only “too big to fail,” but too big to fix.

“We tend to think of these big firms as stocks and portfolios, but there are deep systemic cultures that develop over time and are really hard to change,” said University of Georgia law professor Mehrsa Baradaran. “Wells Fargo is one of those firms that has a toxic culture.”

Wells Fargo is a rolling disaster ― a ripoff, wrapped in a swindle, inside a bank. And yet to a Wall Street investor, Wells Fargo looks like a pretty good bet.

If Wells Fargo were liquidated right now, its shareholders would reap about $211 billion, according to the bank’s latest official accounting. But the company’s stock is currently valued at around $281 billion ― indicating that the stock market believes there is something special about Wells Fargo that adds $70 billion in value to all the crap the company actually owns.

The stock market is wrong all the time, but it’s useful to consider why investors think Wells Fargo is so valuable. Since we know the bank is managed very badly ― federal agencies have sanctioned it for misconduct 43 different times in the years following the 2008 financial crisis ― it is hard to conclude that Wall Street’s enthusiasm has much to do with the skill of Wells Fargo’s management.

Instead, the bank’s magic $70 billion is an expression of its political power, derived from its sheer size. Regulators might focus on fixing individual problems when they arise, but the bank, insulated for decades from serious penalties like prosecution or dissolution, has no pressing incentive to head them off.

“Consequences matter,” said Vermont Law School professor Jennifer Taub. “Until law enforcement holds gilded grifters accountable, they will continue to operate companies … unlawfully.”

Most histories of the 2008 financial crisis focus on elements of the mess that were new, complex or strange ― the explosive growth in exotic products like subprime mortgages and credit default swaps, the spread of risk through new channels of “interconnectivity.” But much of the crisis was the result of something much simpler: There were just way, way too many bank mergers at the turn of the millennium. Several of them became the bank we call Wells Fargo today.

Back in 1996, Wells Fargo was a California-only operation with about $50 billion in assets that wanted to grow. It made a bid for the similarly-sized First Interstate Bank and ended up acquiring the firm in a hostile takeover. The result was an almost immediate debacle. As The Wall Street Journal recounted in 1997:

Wells Fargo lost customers’ deposits, bounced good checks, incorrectly withdrew money from some accounts and added funds to others. Angry customer complaints went unanswered at understaffed branches and telephone support centers.

By 1998, Wells Fargo was in so much trouble it was acquired by a Minneapolis-based bank called Norwest, which assumed the California bank’s name. The stagecoach logo was good, and by taking on the faltering bank’s brand, Norwest could claim a legacy going back to 1852 ― a nice marketing asset. The following year, the combined bank went on an acquisition bender before Wells Fargo and Norwest had even finished integrating their systems, picking up 13 smaller firms in Texas, Pennsylvania, Wyoming, New York, Colorado and Minnesota. Suddenly the bank had $212 billion in assets ― four times the size of the California namesake firm that had botched its big merger three years earlier.

Norwest had been managed by hard-charging CEO Dick Kovacevich, who urged his employees to “cross-sell” as many financial products to its customers as possible. In 1997, before the bank had set its sights on Wells, Kovacevich pushed ahead with an initiative he called ”Going for Gr-Eight,” in which every client would end up with at least eight different Norwest products: a bank account, credit card, insurance, mortgage ― whatever, just get to eight, whether this actually meets a customer’s needs or not. When Kovacevich stepped down in 2007, his deputy, John Stumpf, took over and tweaked the line, living by the motto, ”eight is great.” This may help explain why we later found the bank embroiled in a scandal over several million fake accounts.

But in the meantime, the bank kept growing, buying back big blocks of its own stock and paying out huge dividends to its shareholders. In the two years after the Norwest merger, Wells Fargo announced the acquisition of 41 separate companies. By 2003, the list of takeovers included 22 banks, 17 insurance brokerages, 12 consumer finance companies, 10 “specialized” lenders, four securities brokers, three trust companies, three commercial real estate firms and a mass of loan portfolios and servicing contracts. By 2008, Wells Fargo had had $521 billion in total assets ― 10 times its size a dozen years earlier ― and was raking in over $8 billion a year in profits.

None of this would have been possible without some help from the government. Until 1994, it was illegal for banks to expand across state lines, and when the Clinton administration repealed the Glass-Steagall Act in 1999, they were also permitted to merge with insurance companies and investment banks. Advocates of deregulation argued it would help make banks more stable; if one line of business faltered, the bank would have alternate revenue streams to keep it afloat. The idea that one toxic line of business might poison others ― or that dozens of different fiefdoms would prove impossible for management to corral ― did not seem important. Wells Fargo kept expanding.

But it never really got its basic business in order. There were signs that something was going terribly awry beneath the bank’s profitable veneer. In 2005, a securities regulator fined Wells Fargo $3 million for ripping off its mutual fund clients. In 2007, it paid $12.8 million to settle a lawsuit alleging the bank had stiffed its employees for overtime pay. In January 2008, eight months before the failure of Lehman Brothers, the City of Baltimore filed a civil rights lawsuit against Wells Fargo alleging that the bank had been steering borrowers of color into predatory subprime mortgages. A year later, the state of Illinois filed a similar lawsuit

“At one point Wells Fargo developed this culture of sell the product, customer be damned,” said Baradaran. “And they are not going to change that model because they are making plenty of money despite, maybe even because of, these violations.”

The crash revealed that Wells Fargo had been up to the same nasty business that the rest of the banking industry had been ― selling toxic mortgages and toxic securities, misleading investors and the federal government alike. The bank was still paying out settlements for pre-crash abuse as late as 2016.

Wells Fargo survived the recession with a series of gifts from the federal government ― the Congressional bailout and a lot of help from the Fed. But it also picked up the remains of another massive, faltering bank: Wachovia, in the fall of 2008.

Wachovia was itself another big bank merger horror story. It had acquired Golden West in 2006, a lender that specialized in non-traditional mortgages. Golden West was far from perfect, but it had been careful enough with its customers to survive the savings and loan crisis of the late 1980s and early 1990s. Its signature products, however, were tailor-made for foreclosures if home prices declined. They allowed people to pay low rates early in the life of the loan, with payments ratcheting higher as the years passed. If a borrower couldn’t afford the higher payment and didn’t have the equity to refinance, they were doomed. When Wachovia pumped these loans through its existing bank network, the result was a mortgage meltdown that destroyed the bank.

The Wachovia deal transformed Wells Fargo into a $1.2 trillion behemoth. And through sheer salesmanship willpower, the combined institution expanded by another 50 percent over the next six years. By the time the fake account scandal broke, the company had nearly $1.9 trillion in assets. In 20 years, it had grown by roughly 3,700 percent.

“We tend to think of these big firms as stocks and portfolios, but there are deep systemic cultures that develop over time and are really hard to change. Wells Fargo is one of those firms that has a toxic culture. University of Georgia law professor Mehrsa Baradaran.

The truth is, Wells Fargo has never been able to manage its bulk ― not in 1996, not in 2006, not today. The market is meting out some punishment for its recent misconduct, or Wells Fargo wouldn’t be launching so many advertising campaigns. But much of the company’s consumer business doesn’t actually face consumers ― Wells Fargo just buys up loans and contracts from other firms and processes them, collecting a fee for its service. Plenty of Wells Fargo’s customers don’t really have a say in whether they want to work with the bank or not. Regulatory fines generate headlines ― most notably a $1 billion sanction for that mass automobile repossession screw-up ― but are too small to serve as much more than a cost of doing business.

“Over the past two years, we have made significant progress. We have completed many comprehensive third-party reviews, made fundamental changes to retail sales practices, and received final approval on a class-action settlement concerning retail sales practices,” said Wells Fargo spokeswoman Cynthia Sugiyama.

Among the changes the company says it has enacted are increased pay for entry-level employees, expanded public disclosures and an overhaul for the way it rewards performance of its retail bankers, focusing on “customer experience” rather than numerical sales targets.

Earlier this year, outgoing Fed Chair Janet Yellen took the strongest action against the bank to date, forcing it to replace four of its 12 board members. But no whittling at the edges is going to change Wells Fargo. Though Stumpf was forced out of office in the uproar over the fake accounts, his replacement, Timothy Sloan, is a co-designer of this monster. He made $60.4 million serving in various executive capacities for the bank between 2011 and 2016, according to SEC filings, and certainly doesn’t seem interested in radically overhauling an extraordinarily lucrative business.

Wells Fargo may not even be the worst big bank out there. Citigroup, another merger monstrosity, is so poorly pieced together that today, Wall Street investors don’t even believe the bank is worth its liquidation price. JPMorgan Chase has notched 52 fines and settlements since the crash. Goldman Sachs has 16, three of them this year.

In a revealing interview with New York Magazine earlier this month, former FDIC Chair Sheila Bair said she wished regulators had broken up a bank after the crisis, probably Citigroup. Forcing at least one institution to pay the ultimate corporate price would have put pressure on other major firms to clean up their acts.

Both the Bush and Obama administrations rejected Bair’s plan. And so today, the American banking system ― rescued by taxpayers a decade ago to protect the economy ― has transformed into a very large, very profitable criminal syndicate.

Source: by Zach Carter | Huffpost

Wells Fargo Agrees To Pay $2.09 BIllion Penalty For Mortgage Loan Abuses

The Justice Department announced that embattled Wells Fargo, which has seen its name feature in virtually every prominent banking scandal in the past year, will pay a civil penalty of $2.09 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) based on the bank’s alleged origination and sale of residential mortgage loans that it knew contained misstated income information and did not meet the quality that Wells Fargo represented.

https://www.zerohedge.com/sites/default/files/inline-images/how%20low%20can%20fargo%20go_4.jpg?itok=_1tXYpFC

According to the DOJ, investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in residential mortgage-backed securities (RMBS) containing loans originated by Wells Fargo.

“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Acting U.S. Attorney for the Northern District of California, Alex G. Tse. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”

“This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “It sends a strong message that the Department is committed to protecting the nation’s economy and financial markets against fraud.”

The United States alleged that, despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information, and instead reported to investors false debt-to-income ratios in connection with the loans it sold.

Wells Fargo also allegedly heralded its fraud controls while failing to disclose the income discrepancies its controls had identified. The United States further alleged that Wells Fargo took steps to insulate itself from the risks of its stated income loans, by screening out many of these loans from its own loan portfolio held for investment and by limiting its liability to third parties for the accuracy of its stated income loans.

Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.

Wells Fargo stock dipped on the news, and is now back to unchanged on the day.

https://www.zerohedge.com/sites/default/files/inline-images/2018-08-01%20%283%29.jpg?itok=sIzxfghb

Source: ZeroHedge