October 5, 2016
Backlash builds for Wells Fargo
Wells Fargo has been in the news recently for all the wrong reasons. Predatory lending gave way to a massive scandal that revealed thousands of employees were creating millions of fake bank, savings, and credit accounts using the personal information of current account holders.
The fallout began with thousands of Wells Fargo employees being summarily terminated. Others have now filed a lawsuit claiming they were punished for refusing to act illegally as directed by superiors.
Now, the first governmental agency is getting involved in the fiasco. California, the nation’s largest issuer of municipal bonds, is, according to various news reports, “barring Wells Fargo & Co. from underwriting state debt and handling its banking transactions” … The state gave Wells Fargo no time to counter or dispute the claim, immediately enacting the suspension, which will be in place for at least 12 months. According to State Treasurer John Chiang, a “permanent severance” will occur if the bank doesn’t fix its problems.
The move has already hit Wells Fargo in the pocket, as California replaced WF with Loop Capital in deals totaling $527 million. In a news conference, Chiang left no doubt as to his reasoning:
“Wells Fargo’s venal abuse of its customers by secretly opening unauthorized, illegal accounts illegally extracted millions of dollars between 2011 and 2015… This behavior cannot be tolerated and must be denounced publicly in the strongest terms.”
The move is doubly dreadful for Wells Fargo, as the company’s home base is in San Francisco, a city which has also removed WF from a special incentive program for low-income residents. This came on the heels of a $185 million fine from the U.S. Consumer Financial Protection Bureau.
All of this official disdain will hurt Wells Fargo, but the biggest hit is to consumer confidence. As bank’s gobble each other up, there are fewer and fewer brands for consumers to go to for basic financial needs. Countless account holders have already closed their Wells Fargo accounts, and many more will follow. The longer this story stays in the news, the worse the financial fallout will be for WF Bank.
Will it be the end of its consumer division? Not very likely. Wells Fargo still has strong consumer products divisions, and they are very likely to weather this storm. Meanwhile, though, competitors like Chase and Bank of America stand to pick up a lot of the angry former Wells Fargo customers, a reality that will be tough for Wells Fargo to bounce back from.
This is also a prime PR opportunity for larger regional banks and even credit unions to make a big push for consumer business. They may be able to spin this to peel off customers from all the Big Banks if they play their cards right.