Updated: Oct 29, 2018
Peter Gallagher, Princeton Mortgage Wholesale
We’ve mentioned Wells Fargo several times on this blog. Most recently, I mentioned them in my Thinning the Heard post on October 10th and touched on their expected 10% employment reduction by the year 2022. Today they make headlines again (TWICE in fact), and for very different reasons.
The first: Their commitment of $1.6 billion to help revitalize Washington D.C.
The second: They’ve been ordered to pay $65 million for lying to investors about fake accounts.
Let’s start with the good stuff. Wells has committed more than $1.6 billion to revitalize our nation’s capital over the next five years. The financial commitment is part of a program being launched with the help of the National Community Reinvestment Coalition, called the “Where We Live”. They will direct their aid to the biggest needs according to community leaders. The program will focus on the city’s most economically challenged areas and most of the financial effort will come from over $1.6 billion in loans, investments in mortgages, small business and community lending.
On the other side of the coin, the theme of bad news for Wells continues. After multiple fraud, layoff and protest scandals, the bank has faced a loss of consumer trust and decreasing originations. The newest penalty of $65 million surely won’t help things. Through cross-selling (which allows banks to offer different products to different customers) the bank opened millions of accounts for customers without their permission and lied to investors about it. Wells was made aware of their misconduct as early as 2011, but the bank failed to notify investors that their cross-sell methods were built on fraud.
The lending giant’s plan cost investors millions of dollars while taking advantage of a strong portfolio of wealthy customers. The customers with more products were more profitable for advisors, so by falsely enrolling these customers in additional programs it seemed as if these employees were generating more revenue than they were. The financial impact of this cross-selling scandal was fairly limited but the damage to Wells Fargo’s reputation could be massive. Paired with recent fraud scandals including creating millions of fraudulent savings and checking accounts, compounded with the announcement to reduce staff… one can see how the credibility of Wells Fargo has come into question.
Is their announcement to help revitalize D.C. through the “Where We Live” program part of an effort to save face (for the record I think so)? But, this doesn’t mean the program to restore D.C. won’t have incredibly positive impacts in the Washington Community. Wells deserves to be praised for their commitment to improve areas with a weaker economy. Let’s hope that they’ll be able to move forward and continue to implement things that improve communities all over the United States… and hope that the bad news comes to a halt.
Until next week,
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.