Wells Fargo Likely Faces Regulatory Downgrade, Harming Its Prospects
December 09 2016 - 10:10AM
Dow Jones News
Wells Fargo & Co. is likely to receive a regulatory
downgrade that could hamper its business activity and growth,
according to people familiar with the matter.
The Office of the Comptroller of the Currency is considering a
downgrade of Wells Fargo on a community-lending scorecard, these
people said.
A decision on Wells Fargo's potential downgrade was expected by
the bank as early as Thursday afternoon but was delayed by the OCC
for unknown reasons, a person familiar with the matter said. The
bank may have more clarity on an official decision in the next
week, this person added.
The expected downgrade would likely be a result of Wells Fargo's
sales-tactics scandal. The OCC may take advantage of a longstanding
rule that if a bank engages in unfair and deceptive practices, then
a regulator can lower the bank's rating for purposes of the
Community Reinvestment Act. News of a possible OCC downgrade of
Wells Fargo was previously reported by Reuters.
In the last 18 months, the OCC has more aggressively lowered
other banks' ratings, including this year those of Fifth Third
Bancorp and Regions Financial Corp. based on the rule, which has
been around for decades, one of these people said. At least several
more banks' CRA ratings may be downgraded in the next several
weeks, this person said.
Comptroller of the Currency Thomas Curry recently told a
gathering of housing lenders the agency would soon be releasing
more CRA grades as the agency works through a huge backlog of
exams, some which were done years ago.
"We expect to issue most of those older evaluations by the end
of the year," Mr. Curry said during the early December meeting.
Wells Fargo hasn't had a CRA grade released since 2009 and banks
are supposed to be examined every three years. The OCC in March
launched an effort with senior officers dedicated to working
through the backlog. This means more banks are likely to get
downgraded, people familiar with the effort said.
This is "a major issue because there's never been so many
institutions that are supposed to be examined every two to three
years that are not having an exam report released for every seven
to eight years," said John Taylor, chief executive of the National
Community Reinvestment Coalition, a consumer group.
CRA ratings are related to banks' work in lower-to-moderate
income neighborhoods. The rating is used to evaluate applications
for future approval of bank mergers and acquisitions and branch
openings, among other business matters.
Wells Fargo has had an "outstanding" or top grade for years.
Over the past four years, the bank provided nearly $500 million in
grants to charitable organizations focused on community development
in distressed communities, including affordable housing,
homeownership counseling, financial education, workforce
development and job creation.
Wells Fargo in September agreed to a $185 million fine and
enforcement action related to its sales practices with the OCC,
Consumer Financial Protection Bureau and the Los Angeles City
Attorney. The regulators said that Wells Fargo employees opened as
many as 2.1 million accounts without customers' knowledge.
The San Francisco bank didn't admit or deny wrongdoing as part
of the agreement. But it continues to face public and political
outrage along with a spate of federal and state investigations,
including from the Department of Justice and the Securities and
Exchange Commission.
Separately, the OCC last month imposed more-stringent management
restrictions on Wells Fargo after revoking waivers given to Wells
Fargo that provided relief from tight restrictions on the bank's
operations under the enforcement action related to its scandal.
Write to Emily Glazer at emily.glazer@wsj.com and Rachel
Witkowski at rachel.witkowski@wsj.com
(END) Dow Jones Newswires
December 09, 2016 09:55 ET (14:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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