Wells Fargo’s Scandal-ous Business

By Sanjana Sethi

For Wells Fargo, the days of doom are not yet a thing of the distant past. On October 13, it reported earnings for the fiscal quarter that ended in September 2017. Numbers reported by the San Francisco bank missed analysts’ expectations and disappointed in comparison to peers, Bank of America, J.P. Morgan Chase & Co., and Citigroup Inc.

The bank delivered adjusted earnings of $1.04 per share, marginally above the $1.03 per share Wall Street analysts expected and down from the $1.05 last quarter. It reported revenue of $21.9 billion, below expectations of $22.4 billion and down from $22.5 billion in the second quarter. Net income fell by 19 percent from a year earlier. Following the results, shares fell by 2.8 percent.

Among the host of factors contributing to the dismal reports is a tarnished brand image resulting from a series of missteps in the recent past. Last September, Wells Fargo admitted that its branch staff opened customer accounts using fictitious or unauthorized information. In order to meet aggressive sales targets set by managers, employees abused cross-selling privileges, opening up to 2.1 million fake customer accounts. Following this revelation, the bank fired more than 5000 employees, changed leadership, and desperately clawed back millions of dollars in compensation from its top executives. A year later, the scandal gained renewed focus when the tally of accounts opened due to improper sales tactics increased by 67 percent to 3.5 million accounts.

Compounding the unending woes of the bogus accounts scandal, Wells Fargo continues to struggle with higher expenses following a $1 billion litigation charge tied to investigations into its pre-crisis mortgage lending practices. The bank is still embroiled in inquiries involving insurance products sold by the auto-lending business. Wells Fargo is failing to take advantage of higher interest rates—the one seemingly silver lining—as its year of scandals continues on.