SEC probes Wells Fargo accounts

Company reveals slump in deposits, consumer interaction with bankers

SAN FRANCISCO — Wells Fargo on Thursday confirmed the Securities and Exchange Commission has launched a probe into its sales practices during the unauthorized accounts scandal, and the bank revealed for the first time a slump in consumer banking activity.

Wells also estimated it faces up to $1.7 billion in potential litigation costs linked to several investigations.

On Sept. 8, the San Fran- cisco-based bank was hit with $185 million in fines for the scandal, in which Wells employees, under pressure to hit sales targets, secretly opened as many as 2 million bogus accounts and funded them with customer money. The fines were imposed in a settlement with the federal Consumer Financial Protection

Bureau and two other agencies.

Wells Fargo said Thursday it began to see declines in consumer deposit activity and customer interaction with bankers in September. The declines occurred even though traffic to Wells branches was roughly the same as usual, Mary Mack, the bank’s new chief of retail banking operations, told the BancAnalysts Association of Boston Conference.

“Customer visits with bankers in our branches, a subset of our overall customer traffic, were down 10 percent in September compared with a year ago,” Mack said.

The drop in interaction with bankers, combined with reductions in marketing and product offerings, “resulted in new consumer checking account openings declining 25 percent in September compared with openings in September a year ago,” Mack said.

Thursday’s revelations make it clear that Wells Fargo faces a murky future on both the consumer and legal fronts.

Numerous federal, state and local government agencies — including the U.S. Department of Justice, state attorneys general and congressional committees — are looking into the bank’s activities, Wells said in the SEC filing.

Investigators are scru- tinizing Wells’ sales and mortgage practices, and a separate probe is examining debit card transactions at Wachovia Bank, which Wells bought in 2008 during the financial crisis.

Moreover, the embattled bank said it has nearly doubled the amount of money set aside to cover its legal woes.

“The high end of the range of reasonably possible potential litigation losses, in excess of the company’s liability for probable and estimable losses, was approximately $1.7 billion as of Sept. 30,” Wells Fargo said in the SEC filing.

Wells Fargo’s board forced former Chief Executive Officer John Stumpf to forfeit $41 million in stock and salary, and Stumpf subsequently stepped down under fire. In addition to the investigations, several states and cities, including California, have suspended business activity with Wells Fargo.

But the bank’s woes, experts say, are only beginning.

“Everything that has happened is just the tip of the iceberg,” said Ken Thomas, a Miami-based independent banking analyst. “The real problems for Wells Fargo are the SEC and criminal investigations, and the damage to the bank’s reputation.”

The bank’s shares slipped slightly on Thursday, closing down 0.02 percent, or 1 cent, to close at $45.35.

The bank is attempting to determine whether some in-house whistleblowers were punished for attempting to alert managers about fraudulent activities, new CEO Timothy Sloan told the Boston conference. Wells Fargo terminated 5,300 bank employees for their roles in the scandal.

“We’re reviewing claims regarding retaliation against team members,” Sloan said. “We’re also assisting former team members who left retail banking because they did not meet performance goals and who remain eligible for rehire.”

Sloan said Wells has been chastened by the scandal.

“The sales practices issues identified in the settlement are unacceptable,” Sloan said. “I have learned that we have thousands of team members who are do- ing the right thing for customers every day and who are excited about the direction we are taking towards a service culture.”

Analyst Michael Yoshikami said Wells has a rough road ahead but eventually will right itself.

“This will be a continuing concern for Wells Fargo into 2017,” said Yoshikami, president of Walnut Creekbased Destination Wealth Management, which tracks financial companies.

“The fundamentals of the bank remain intact, and it appears as if the company is taking significant actions to adjust practices, which led to its current difficulties. I expect the company to recover and eventually put this trouble behind them.”