Warren
Buffett: The three mistakes Wells Fargo made
The Federal Reserve has dropped the hammer on Wells Fargo.
The
Fed handed down unprecedented punishment late Friday for what it
called the bank's "widespread consumer abuses," including its
notorious creation of millions of fake customer accounts.
Wells
Fargo won't be allowed to get any bigger than it was at the end
of last year -- $2 trillion in assets -- until the Fed is
satisfied that it has cleaned up its act.
Under
pressure from the Fed, the bank agreed to remove three people
from the board of directors by April and a fourth by the end of
the year.
It
is the first time the Federal Reserve has imposed a cap on the
entire assets of a financial institution, according to a Fed
official.
"We
cannot tolerate pervasive and persistent misconduct at any
bank," outgoing Fed Chairwoman Janet Yellen said in a statement.
Friday was her last day on the job.
Wells
Fargo (WFC) controls
more money than any bank in the United States besides JPMorgan
Chase, according to Fed data. But its reputation has been
shattered over the past year and a half by a seemingly endless
series of misconduct.
Most
prominently, Wells Fargo admitted that its workers responded to
wildly unrealistic sales goals by creating as many as 3.5
million fake accounts. The bank has also said it forced up to
570,000 customers into unneeded auto insurance.
The
bank agreed to the Fed's conditions under what's known as a
consent decree. In a statement, Wells Fargo said it is
"confident" it can meet the Fed's requirements.
"We
take this order seriously and are focused on addressing all of
the Federal Reserve's concerns," said CEO Timothy Sloan, whose
predecessor, John Stumpf, resigned a month after the
fake-accounts scandal broke.
The
Fed will require Wells Fargo to turn in detailed plans of what
it has done, and intends to do, to fix the board. Wells Fargo
must also submit a broader explanation for how it will improve
its internal controls and its handling of risk. Those plans are
due in 60 days.
By
September 30, Wells Fargo must engage a third party to review
how the bank is executing those plans.
Wells
Fargo will still be able to accept consumer deposits and make
loans to consumers, the Fed official said. However, it will be
up to the bank to determine what changes may need to be made to
its business in order to stay under the asset cap.
Wells
Fargo stock fell more than 6% in after-hours trading Friday.
Senator
Elizabeth Warren, a Massachusetts Democrat and the most
prominent of Wells Fargo's many critics in Congress, had begged
Yellen to go after the board. Warren said in July that nothing
would change at the big banks until "actual human begins are
held accountable." Warren's office had no immediate comment on
Friday night.
In
a tweet Friday, Warren lauded Yellen for taking action and
reiterated the case for tough regulation.
Chair Yellen's decision today to freeze the growth of Wells Fargo until it shapes up also demonstrates that we have the tools to rein in Wall Street -- if our regulators have the guts to use them. This one hits them where it hurts.— Elizabeth Warren (@SenWarren) February 3, 2018
"Chair
Yellen's decision today to freeze the growth of Wells Fargo
until it shapes up also demonstrates that we have the tools to
rein in Wall Street -- if our regulators have the guts to use
them," Warren wrote. "This one hits them where it hurts."
The
scandal broke into public view in
September 2016,
when regulators revealed that Wells Fargo had created millions
of bank accounts for customers without their knowledge. The
company admitted the
fake accounts dated back to 2009.
Since
then, Wells Fargo has faced lawsuits,
federal and state investigations, fines,
and a grilling from Congress. The company ousted its CEO, John
Stumpf, in October 2016. The number of customers opening new
accounts at the bank plummeted. Workers alleged they were fired
orretaliated
against for
speaking up about misbehavior.
Legal
bills cost the company $3.3 billion last quarter, Wells Fargo said
in January.
And
the fake accounts aren't Wells Fargo's only problem.
Last
July, the company admitted it
forced auto insurance on as many as 570,000 borrowers who didn't
need it. About 20,000 of those customers had their cars
wrongfully repossessed in part due to these unwanted insurance
charges.
In
August, Wells
Fargo was sued by small business owners who
say the bank used deceptive language to dupe mom-and-pop
businesses into paying "massive early termination fees."
The
company was
in the headlines again in
October for charging about 110,000 mortgage borrowers undue
fees.
The Justice
Department fined the company in
November for illegally repossessing cars from more than 860
service members. Federal law requires banks to get a court order
before repossessing a car from members of the military.
--CNNMoney's
Matt Egan contributed to this report.
CNNMoney
(New York)First
published February 2, 2018: 6:52 PM ET