Wells hasn’t got­ten ahead of prob­lems

San Francisco Chronicle Late Edition - - BUSINESSREPORT - By Stephen Gan­del

Wells Fargo re­cently be­gan a se­ries of ad­ver­tise­ments meant to re­build trust with cus­tomers. But the ads, to pull an im­age from the San Francisco bank’s long-ago cam­paigns, are putting the wagon be­fore the horse.

Ev­i­dence of that is pil­ing up. On Thurs­day, the Wall Street Jour­nal re­ported that Wells Fargo re­cently dis­cov­ered that em­ploy­ees were im­prop­erly al­ter­ing the doc­u­ments of busi­ness bor­row­ers, adding in­for­ma­tion to the ac­counts with­out con­sent or no­ti­fy­ing the clients. It’s not clear that al­ter­ing the doc­u­ments cost clients any money — a Wells Fargo spokesper­son says it didn’t — but the prob­lem is it has that fa­mil­iar whiff of go­ing be­hind cus­tomers’ backs, even though this is ap­par­ently on a smaller scale than Wells’ ear­lier scan­dal of phony ac­counts. Wells says that the ac­tiv­ity con­tin­ued to oc­cur as re­cently as this year, and that it has re­ported the in­frac­tions to reg­u­la­tors.

The lat­est is­sue comes only a week af­ter news came out that Wells Fargo ad­mit­ted it had im­prop­erly col­lected fees on a Ten­nessee pub­lic pen­sion fund. The fund says nearly $50,000. Wells Fargo claims less, but the bank also dis­closed in a reg­u­la­tory fil­ing that it is dis­cov­er­ing that im­proper fees could be a wide­spread prob­lem in its pen­sion fund busi­ness. The bank’s wealth man­age­ment unit is also un­der in­ves­ti­ga­tion for pres­sur­ing clients into rolling over their low-cost 401(k) ac­counts into more ex­pen­sive al­ter­na­tives.

For Wells Fargo to spend money on an ad­ver­tis­ing campaign that says “trust us” seems like a gi­ant waste of money, when ev­i­dence rolls out seem­ingly weekly that clients still shouldn’t.

But it also high­lights a per­sis­tent and re­peated prob­lem that the bank and its CEO, Tim Sloan, have made through­out this scan­dal-plagued era. Wells Fargo has reg­u­larly said its prob­lems are in the past, with­out spend­ing the money it should to ac­tu­ally put those prob­lems in the past. Wells Fargo, like other banks, doesn’t break out what it spends on com­pli­ance, and says it’s gen­er­ally spend­ing more, but in its most re­cent quar­ter it’s hard to see where. Salaries across the bank were up just 2 per­cent from a year ago, and down from the last three months of 2017.

Over­all ex­penses were up, but pre­dom­i­nantly be­cause of one-time costs, such as the $800 mil­lion it re­al­ized for pay­ing its lat­est reg­u­la­tory fine, which mostly had to do with auto lend­ing. In Feb­ru­ary, the Fed­eral Re­serve sanc­tioned Wells Fargo for not hav­ing proper risk con­trols in place. The bank has since told share­hold­ers it plans to cut costs, not raise them in or­der to im­prove com­pli­ance.

The most re­cent prob­lem, ac­cord­ing to the Wall Street Jour­nal, ap­pears to have come as Wells Fargo raced to com­ply with an or­der from reg­u­la­tors that it col­lect in­for­ma­tion on more than 100,000 ac­counts that it was sup­posed to have.

It ap­pears em­ploy­ees im­prop­erly al­tered the files, po­ten­tially adding false in­for­ma­tion, as part this reg­u­la­tory review, once again show­ing a lack of over­sight. Salaries in the unit in ques­tion fell dur­ing the first quar­ter.

The lat­est prob­lems have not in­di­vid­u­ally dented Wells Fargo’s stock price. In­deed, shares were down less than 1.5 per­cent on Thurs­day’s news. But the fact that Wells Fargo has yet to fix its prob­lems def­i­nitely weighs on its shares.

The stock is up less than 10 per­cent in the past year, un­der­per­form­ing the nearly 40 per­cent rise of the shares of ri­vals JPMor­gan Chase and Bank of Amer­ica. Ma­jor share­hold­ers like War­ren Buf­fett say they are stick­ing with Wells and have con­tin­ued to back Sloan, but even­tu­ally the gap be­tween Wells and its peers — like the gap be­tween slo­gans and scan­dals — will erode share­holder sup­port.

The longer Sloan pre­tends that his bank’s prob­lems are in the past, rather than be­ing frank about the issues and spend­ing the money to fix them, the shorter his time atop the bank will be.

Richard Drew / As­so­ci­ated Press

As Wells Fargo tries to re­build trust, it keeps stum­bling through one scan­dal af­ter an­other.

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