Wells Fargo Close to Settling Risk-Management Claims With Regulators
April 19 2018 - 5:12PM
Dow Jones News
By Yuka Hayashi and Emily Glazer
Wells Fargo & Co. is close to settling claims by federal
regulators related to its risk management, involving a fine of as
much as $1 billion, people familiar with the matter said.
The settlement with the Consumer Financial Protection Bureau and
Office of the Comptroller of the Currency is expected to be
announced as soon as Friday. It will detail the bank's failures to
catch and prevent problems, including improper charges to consumers
in its mortgage and auto-lending businesses, the people said.
The settlement also could include increased regulatory scrutiny
of the bank's compensation to employees responsible for its sales
practices, according to a person familiar with the matter.
Wells Fargo disclosed last week that the CFPB and the OCC had
offered to the resolve civil investigations for $1 billion. The
final terms of the settlement couldn't be determined.
The settlement would be another blow to Wells Fargo and follows
an unprecedented enforcement action by the Federal Reserve in
February that barred the bank from growing past the $1.95 trillion
in assets it had at the end of 2017. The Fed cited "widespread
consumer abuses" in its rebuke.
It also would far exceed a $185 million fine the two financial
regulators and a city official imposed on Wells Fargo in 2016 after
finding the San Francisco-based bank had opened as many as 3.5
million accounts without customers' knowledge or consent.
Wells Fargo has been under investigation by federal and state
regulators across different businesses since the sales practices
scandal erupted in 2016 . At the root of some of the problems is
the bank's risk-management framework, which it has been changing in
the past several months as regulators intensified their
pressure.
The settlement would be the first major enforcement action by
the OCC under the Trump administration and the first action by the
CFPB since Trump-appointed officials took control of the agency in
November, with its acting director Mick Mulvaney ordering a
re-examination of the agency's regulations and enforcement
cases.
President Donald Trump in December tweeted that Wells Fargo
remained in the government's crosshairs. "I will cut Regs but make
penalties severe when caught cheating!" Mr. Trump said in the
tweet.
It isn't clear how the bank will account for the settlement in
its finances, though it did say last week it may need to restate
earnings because of the regulatory negotiations. The bank said it
was "unable to predict the final resolution" of the OCC and CFPB
matter and "cannot reasonably estimate our related loss
contingency."
Chief Executive Timothy Sloan on a call with analysts on April
13 wouldn't say whether Wells Fargo had included any provisioning
for the potential settlement in its first-quarter results. He said
the bank likely would have updates on the negotiations in its
quarterly securities filing that typically is disclosed a few weeks
after it reports earnings.
The bank also has its annual shareholders meeting on April
24.
Banking regulators in mid-2017 downgraded one part of a secret
assessment of Wells Fargo's health and strength related to its risk
management, The Wall Street Journal reported in January.
The assessment -- known as a CAMELS score -- ranks a firm on
measures including capital, management and liquidity. The scores
can affect the level of insurance payments a bank must make as well
as the level of regulatory oversight of a firm.
Wells Fargo and the OCC have negotiated for months over how the
firm assesses risks and over a potential settlement, The Journal
has reported. The OCC also sent the bank's board a letter in
November about these issues.
The company in recent months hired a consultant to try to revamp
its procedures and revisited structural changes made in response to
the sales-practices scandal.
The bank also said its chief risk officer Mike Loughlin would
retire and that it will hire someone to replace him in "the next
few months." The bank hasn't named a replacement but has been
interviewing outside candidates, people familiar with the process
said.
In late January, Wells Fargo appointed former Federal Reserve
Bank of New York official Sarah Dahlgren to oversee regulatory
relations for its corporate risk group.
The Journal reported in March that four top risk management
executives would be retiring from Wells Fargo in the coming
weeks.
--Ryan Tracy contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com and Emily Glazer
at emily.glazer@wsj.com
(END) Dow Jones Newswires
April 19, 2018 16:57 ET (20:57 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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