Back on April 9 we described the latest example of how criminal Wall Street behavior leads to zero prison time and just more slaps on the wrist, when Warren Buffett's favorite bank, Wells Fargo, admitted to "deceiving" the U.S. government into insuring thousands of risky mortgages. According to the settlement, Wells Fargo "admits, acknowledges, and accepts responsibility" for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.
In short: it admitted that is deceived and defrauded the government.
Its "punishment" - a $1.2 billion settlement of a U.S. Department of Justice lawsuit, the highest ever levied in a housing-related matter.
And now, having suffered so much trauma which led to precisely nobody going to prison, less than two weeks later it's time for Wells to get its reward: as Bloomberg reported earlier, the "bond market’s most exclusive clubs got a new member" when the NY Fed granted the criminal Wells Fargo Primary Dealer status.
The brokerage arm of Wells Fargo & Co., the third-biggest U.S. bank by assets, was designated a U.S. primary dealer by the Federal Reserve Bank of New York on Monday. It’s the first addition to the list since February 2014, when the U.S.-based brokerage of Toronto-Dominion Bank was included. The roster of primary dealers has grown to 23 firms from as low as 17 in 2008, although it remains below its 1988 peak of 46.
"A long process of working with the Fed has come to a conclusion," Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, said by phone. "The scope and scale of what we’ve been doing, it’s been at the level of a primary dealer for a long time.” The process took years, Wilkinson said, declining to elaborate.
We dread to ask just what that is.
Others were quick to jump on board and congratulate Wells: "Inclusion of a well-capitalized, well-rated firm onto the primary dealer list can only be a positive for the Treasury market,” Kevin McPartland, head of research for market structure and technology at financial-services consulting firm Greenwich Associates, said in an e-mail.
Of course, the only reason why Wells was granted PD status is because as Bloomberg reminds us, Wells Fargo has been expanding its lineup of bond-trading businesses as its competitors shrink. The bank has plans to start trading single-name credit default swaps, people with knowledge of the matter said last month.
And what better way to get an implicit stamp of approval than by saying it is a Fed primary dealer, a position which also grants its direct Treasury auction access.
Primary dealers are required to make “reasonably competitive” bids for a pro-rata share of every U.S. debt auction, according to the New York Fed. Last year, a total $2.1 trillion of Treasury bills, notes and bonds were issued, according to Sifma. The firms also trade with the Fed as it implements monetary policy, and provide market commentary for the New York Fed’s trading desk.
“Wells Fargo is moving up the ranks in investment banking and being a primary dealer in Treasury instruments signifies their rising importance in finance,” Bill Smead, chief executive officer at Seattle-based Smead Capital Management, which holds Wells Fargo shares and manages about $2.4 billion, said by e-mail.
“This is important when other sources of revenue are scarce and will be one more way higher interest rates would be helpful to overall profits,” he said.
Sure is, and now if only Wells can pull a Goldman and "Lehman" one of its key competitors, its revenue potential will be unmatched by almost any other bank.