Wells Fargo fac­ing some new prob­lems

Bank, the sub­ject of a new fed­eral in­quiry, may have cre­ated more unau­tho­rized ac­counts than thought.

Los Angeles Times - - BUSINESS BEAT - By James Ru­fus Koren james.koren@la­times.com Twit­ter:@jrko­ren

Wells Fargo & Co.’s trou­bles con­tinue to mount, with a bevy of new dis­clo­sures Fri­day: The bank may have cre­ated more unau­tho­rized ac­counts than first thought, it is the sub­ject of a new fed­eral in­quiry and it could face $1.3 bil­lion more in le­gal costs than pre­vi­ously es­ti­mated.

In its lat­est quar­terly fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion, the San Fran­cisco bank ac­knowl­edged that a re­view of ac­counts cre­ated as far back as 2009 “may lead to a sig­nif­i­cant in­crease in the iden­ti­fied num­ber of po­ten­tially unau­tho­rized ac­counts.”

The bank’s only es­ti­mate of the num­ber of ac­counts that may have been cre­ated with­out cus­tomers’ con­sent is 2.1 mil­lion, a num­ber re­leased last Septem­ber when Wells Fargo agreed to pay $185 mil­lion to reg­u­la­tors over the prac­tice.

But that num­ber was based on a re­view of ac­counts cre­ated be­tween mid-2011 and mid-2015, and the bank had pledged to ex­pand that re­view to go back to 2009 and for­ward to mid-2016. That re­view is now wrap­ping up, prompt­ing the an­nounce­ment that the num­ber of po­ten­tially unau­tho­rized ac­counts may grow.

The bank this spring ac­knowl­edged that unau­tho­rized ac­counts may have been cre­ated as long ago as 2002, but it is not con­duct­ing an ac­tive in­quiry that goes back that far. How­ever, at­tor­neys who ne­go­ti­ated a $142-mil­lion class-ac­tion set­tle­ment with the bank over the prac­tice es­ti­mated sev­eral months ago that the to­tal num­ber of unau­tho­rized ac­counts cre­ated over the last 15 years may be more like 3.5 mil­lion.

The bank said in its fil­ing that it does not ex­pect any added cost of re­funds or other re­me­di­a­tion will have a sig­nif­i­cant im­pact on the com­pany’s bot­tom line. The re­view is ex­pected to be com­pleted by the end of next month.

Even so, the bank said it was in­creas­ing its po­ten­tial losses re­lated to var­i­ous le­gal proceedings and in­ves­ti­ga­tions to $3.3 bil­lion — up from $2 bil­lion in its last quar­terly fil­ing.

On a con­fer­ence call with in­vestors last month, Wells Fargo Chief Fi­nan­cial Of­fi­cer John Shrews­berry said the bank was in­creas­ing the fig­ure be­cause of a “va­ri­ety of mat­ters,” in­clud­ing an on­go­ing in­ves­ti­ga­tion by the Depart­ment of Jus­tice and sev­eral state agen­cies into mort­gage prac­tices.

The bank on Fri­day put one le­gal mat­ter to rest, an­nounc­ing a $108-mil­lion pay­ment to the fed­eral gov­ern­ment to set­tle decade-old al­le­ga­tions that it charged im­proper fees on home loans to vet­er­ans — and im­prop­erly col­lected gov­ern­ment pay­ments when some of those loans went bad.

The deal set­tles a law­suit first brought against Wells Fargo and other big banks in 2006 by a pair of mort­gage bro­kers in At­lanta.

Most other lenders, in­clud­ing JPMor­gan Chase, Coun­try­wide and Citi set­tled in 2012.

“Wells Fargo de­cided to mount a ‘Stal­in­grad de­fense,’ deny­ing the un­de­ni­able, and fought for al­most five years af­ter the other banks set­tled,” said James But­ler, one of the at­tor­neys for the mort­gage bro­kers.

But­ler’s clients al­leged that Wells Fargo charged im­proper fees to vet­er­ans who took out govern­ment­backed mort­gage re­fi­nanc­ing loans.

Those fees should have nul­li­fied the gov­ern­ment guar­an­tee be­hind the loans, but the bank still col­lected guar­an­tee pay­ments on loans that went bad, the bro­kers claimed.

Wells Fargo did not ad­mit to any of the al­le­ga­tions. In a state­ment an­nounc­ing the deal, Wells Fargo Chief Ex­ec­u­tive Tim Sloan noted the bank pre­vi­ously set­tled a suit brought by vet­er­ans, agree­ing to com­pen­sate them for any im­proper fees they may have paid.

“Set­tling this long­stand­ing law­suit al­lows us to put the mat­ter be­hind us and con­tinue to fo­cus on serv­ing cus­tomers and re­build­ing trust with our stake­hold­ers,” Sloan said in Fri­day’s state­ment.

The com­pany also ac­knowl­edged Fri­day that it is un­der in­ves­ti­ga­tion by the Con­sumer Fi­nan­cial Pro­tec­tion Bu­reau over al­le­ga­tions that it im­prop­erly charged mort­gage bor­row­ers for fees that the bank should have cov­ered.

Re­ports sur­faced early this year that the bank, and of­fices in South­ern Cal­i­for­nia in par­tic­u­lar, would force bor­row­ers to pay fees as­so­ci­ated with de­lays in mort­gage ap­pli­ca­tions, even when the de­lays were the bank’s fault. Last month, a for­mer mort­gage banker in Bev­erly Hills sued the bank, say­ing he was fired for re­port­ing that prac­tice.

Bank spokesman Kurt Schroeder said the bank is re­view­ing its prac­tices re­lated to those fees, called rate-lock ex­ten­sion fees.

Wells Fargo shares fell 1% to close at $52.84 Fri­day. Bank stocks gen­er­ally were higher for the day, with the bench­mark KBW-Nas­daq bank in­dex climb­ing 1%.

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