Wells Fargo Crashes After Fed's Shocking Crackdown Bans Bank From Growing

Is this what a "soft nationalization" looks like?

Wells Fargo may be Warren Buffett's favorite bank, but the endorsement of America's favorite benevolent plutocrat hasn't spared it from an unusually severe punishment: two hours after markets closed on Janet Yellen's last day in office, the Fed announced unexpectedly harsh sanctions against Wells for a host of consumer and oversight abuses dating back to its infamous cross-selling scandal, barring the bank from growing until it fixes its criminal culture.

In a late Friday press release - one which is certain to exacerbate today's selloff when markets reopen on Monday- the Fed said it would bar Wells from expanding its assets beyond their end-2017 level until it "sufficiently improves its governance and controls."

Also, the Fed is demanding that Wells replace three current board members by April and a fourth board member by the end of the year. The release says the board of directors must also improve its oversight practices. The bank will not be allowed to grow until the Fed approves a detail plan of action to be submitted by the bank.

"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,” 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."

As the release explains, in recent years, Wells pursued a business strategy that prioritized growth over managing risks and offering sufficient oversight of the firm's lending practices. As a result, the firm cheated customers of its auto-lending division and also overcharged some mortgage borrowers. And that was AFTER the cross-selling scandal mentioned above. The bank is also facing a criminal probe into its foreign-exchange desk, which allegedly overcharged its large corporate clients. The firm also lacked "an effective firm-wide risk management framework in place that covered all key risks." This, the Fed says, prevented the serious compliance breakdowns from being adequately reviewed by the board.

Emphasizing the need for improved director oversight of the firm, the Fed's disciplinary board sent a letter to Wells Fargo board members confirming that the firm's board of directors did not meet supervisory expectations during the period when these abuses were perpetrated. Letters were also sent to former Chairman and Chief Executive Officer John Stumpf and past lead independent director Stephen Sanger stating that their performance in those roles, in particular, did not meet the Federal Reserve's expectations.

Wells has provoked a vociferous public outcry because of these abusive lending practices, which have impacted millions of Americans. The pension funds of several states and municipalities have even divested their WFC shares in protest.

Responding to the letter, Wells promised to make things right and its board said it would deliver its improvement plan within 60 days.

As a result of Yellen's "parting gift" which came after today's market bloodbath which in point terms was the biggest Dow plunge since the financial crisis, even greater than the US downgrade in August 2011, WFC shares plunged a staggering 8% in after-hours trading now that the Fed appears to also be finally a regulator as well.

Or maybe not, because now Wells at least has an excuse justifying why its business model is in secular decline.

Remember that earlier this month we showed that Wells reported the worst mortgage numbers since the crisis. It's not as if the bank needed the Fed to tell it it is prohibited from growing - there just was no demand for its core products: mortgage loans.

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Now Wells has a convenient scapegoat to explain away why it sucks so bad at what it does: the Fed's crackdown on its criminal culture... an act which may have just bought Wells 2-3 quarters of time before it has to explain to Wall Street why its "bread and butter" mortgage lending business is in the shitter.

Comments

Sir Edge Bud Dry Fri, 02/02/2018 - 18:54 Permalink

.
Great...

Sock It To Wells Fargo... Criminal Indictments would be icing on the cake... 

""The Fed is demanding that Wells replace three current board members by April and a fourth board member by the end of the year.""

Th Fed should be DEMANDING prosecution by the DOJ of Wells Fargo for Financial Crimes... not politely asking Wells to please, if you would so kindly, replace 3 Board Members...

.
Edgey

 

In reply to by Bud Dry

GUS100CORRINA SethPoor Fri, 02/02/2018 - 19:13 Permalink

Wells Fargo Crashes After Fed's Shocking Crackdown Bans Bank From Growing
 

My response: GOOD!!!!

Question for everyone: With the market internals looking terrible and the release of the FISA MEMO, will the markets crash on Monday? If BITCOIN performance is any indication, some real pain maybe just ahead.

It is my humble opinion that the republic needs to repent of its sins or face financial armageddon. 

 

In reply to by SethPoor

GUS100CORRINA SethPoor Fri, 02/02/2018 - 19:13 Permalink

Wells Fargo Crashes After Fed's Shocking Crackdown Bans Bank From Growing
 

My response: GOOD!!!!

Question for everyone: With the market internals looking terrible and the release of the FISA MEMO, will the markets crash on Monday? If BITCOIN performance is any indication, some real pain maybe just ahead. (To see how far markets can fall, just check out the rules for market circuit breakers. You will be shocked at how far the market can fall before it is halted.)

It is my humble opinion that the republic needs to repent of its sins or face financial armageddon. 

 

In reply to by SethPoor

Endgame Napoleon SethPoor Fri, 02/02/2018 - 19:15 Permalink

They hire almost all young people, not that young people do not need jobs. They do. The Millennials are underemployed. They hire college grads, paying most of them low wages. But that algorithm thing just sounded like a way to get new salespeople to assume the sale. It is actually hard to make yourself do that at first, but it works. If you ask everyone religiously, amazingly, you sell something every day or almost every day. You have to do it over and over and over and over again, finding a charming way to do it that does not annoy customers. Well, it will annoy many of them, and you have to learn to not be cowed by that, while still being respectful to them. The algorithm just forced the salespeople to do it. Because, they could not get to the service screens without offering the customers a product. I really do not see the criminality in that. The Fake Accounts were different, and that Foreign Exchange Bank thing sounds bad.

In reply to by SethPoor

americanreality Endgame Napoleon Fri, 02/02/2018 - 20:27 Permalink

They hire immigrants straight off the boat.  People that can barely speak English.  Wells hands them internal helpline numbers and says "call this # if you have questions".   Its a miserable shitpile for employees, but the incompetence at the top is rewarded handsomely.  

Will we ever see these people dangling from lampposts?  We can only hope. 

In reply to by Endgame Napoleon

JRobby SethPoor Fri, 02/02/2018 - 19:16 Permalink

Seriously, Wells is shit.

Look at the branch network they were "awarded" by the crisis as banks failed and were handed to Wells. What did they do with the "opportunity" ??? Fraud and theft.

Wells & Countrywide had identical products, rate sheets and FICO / Equity matrix's day in and day out but Countrywide was the "bad seed".

They also have horrible online banking, Just crap. They treat their customers like dirt.

 

 

In reply to by SethPoor

pliny the longer new game Fri, 02/02/2018 - 20:49 Permalink

feel ur pain ng;  had a complete and total melt down inside a 5/3 bank soon after TARP.  just couldn't take it anymore. fifth third is a super regional, not as big as wells fraudgo.  but didn't stop me from berating the 'vice president', the staff, customers and banking in general.  i'll admit it, i lost my shit.  they threatened to call po po if i didn't leave.  never looked back and to this day, still think i was right. 

In reply to by new game

chestergimli Sir Edge Sat, 02/03/2018 - 11:07 Permalink

There are at least as many wicked board members at Goldman Sachs and J P Morgan.  How come these other banks aren’t getting the Axe.  All they have to do is get a small fine.  I wonder if banks like Goldman Sachs and J P are trying to eliminate some competition.  Maybe Wells Fargo isn’t as kosher as they would like.

In reply to by Sir Edge

NoDebt Bud Dry Fri, 02/02/2018 - 18:56 Permalink

At some point MAYBE it will become obvious what should have been done in 2008 and should still be done today:  break up the big banks.  But, no, we turn them into criminal public utilities under the heading of "too big to fail".  Is it not obvious they have NO INTENTION OF STOPPING THEIR CRIMINALITY EVER?  They get caught, pay a fine and a year later they're doing it AGAIN.  They will NEVER stop because they're "too big to fail" which mean the same thing as "immortal".

If you were immortal would you give a shit?  Well, neither do they.

 

In reply to by Bud Dry

Endgame Napoleon HRH of Aquitaine 2.0 Fri, 02/02/2018 - 19:20 Permalink

Ooh, that is bad. You must not have fallen into one of Obummer’s favorite groups, like single mommas who qualify for special programs to make their home loans affordable, even though they are the ones also getting the free food and other monthly freebies, in addition to now-doubled child tax credits, vaulted over the former $6,444 max. 

In reply to by HRH of Aquitaine 2.0

DaiRR Bunga Bunga Fri, 02/02/2018 - 19:31 Permalink

Wells Fargo, a San Francisco, California based corrupt bank with over 8,000 branches in 40 states and 70 countries.  It is one the the U.S. "Big Four" banks, the others being JPMorgan Chase, Bank of America and Citigroup.  Whoops, Wiki didn't throw the Federal Reserve in there too, maybe because it's a different model but just as corrupt as any.  To hell with Wells Fargo, they're California trash.

In reply to by Bunga Bunga