Warren Buffet's favorite scandal-plagued US bank - which seemingly can't go one single quarter without evidence of more illegal behavior emerging - has failed to convince the Federal Reserve that its improvement of its oversight practices will help prevent future fraud and abuse directed at its customers and clients.
According to Reuters, the Federal Reserve has rejected Wells's reform plan and warned the bank that it needs stronger checks against management, or potentially face more sanctions from the central bank. This after the Wall Street Journal reported earlier this week and revealed that the bank would fire nearly 40 regional managers whom it has accused of complicity in the bank's disastrous cross-selling scandal. By laying off staff, the bank had sought to convince the central bank that it is fixing problems related to its fraudulent sales practices.
In an unprecedented crackdown on a US bank, the Federal Reserve back in February revealed that it would cap assets in Wells' lending business at end-2017 levels, something we noted at the time resembled a "soft nationalization" as the central bank had effectively seized control over Wells's balance sheet.
But presumably, the Fed is trying to tell the bank that simply firing mid-level managers isn't enough: The bank must implement significant checks against abuse and fraud that will stay in effect regardless of who is running the bank. By rejecting the bank's proposal, the Fed will ensure that its asset-price cap on Wells Fargo's lending business will remain for the foreseeable future. If there is a silver lining here, it's that the bank has assured its shareholders that the restrictions will "only" hurt profits by $100 million this year.
Wells Fargo subsequently submitted its plan in April expecting the Fed to sign-off on it over the summer, but the central bank instead told the country’s fourth-largest lender to go back to the drawing board, the people said.
The settlement requires Wells Fargo to toughen board oversight, repay customers hurt by past abuses, and make more than 20 other improvements to its governance, risk management and compliance controls.
It also required the plan to be approved, implemented and an independent third-party review completed by Sept. 30, but the bank has missed this deadline, the people said.
That alone could have triggered further sanctions under the terms of the settlement, but the Fed has granted Wells Fargo more time to satisfy the February order, the sources said.
According to CNBC, Wells Fargo submitted its plan to the Fed back in April, hoping that it would approve it over the summer. Instead, the Fed sat on the report for months before sending the bank back to the drawing board. After submitting its plan, Wells CEO Tim Sloan met with Fed Governor Lael Brainard to try and agree on the specifics, but these talks were clearly unsuccessful....