USA TODAY International Edition

5,300 bad apples spoil Wells Fargo’s reputation

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The financial crisis of 2008 revealed many things, most shockingly the greed of big Wall Street investment banks that deluded themselves and their clients into thinking that bundles of toxic mortgages could be spun into safe investment­s.

For bank executives looking for ways to justify their massive bonuses, this exercise in financial alchemy proved highly effective. By the time its insanity was revealed and the housing market collapsed, staggering sums had gone out the door.

Of course that was then, and this is now. The hard lessons learned from the collapse, combined with tough new regulation­s, ensure that these types of shenanigan­s are a thing of the past, right?

Er, maybe not. This month, Wells Fargo admitted that thousands of its employees had been signing customers up for accounts they did not authorize and knew nothing about, simply so the bankers could meet aggressive sales goals.

These customers will be made whole, and the bank has fired 5,300 people. But, as with the housing bust, shareholde­rs will pay for this rogue activity in fines and damage to the bank’s reputation. Wells Fargo has already been slapped with a $ 185 million fine, and the Justice Department has opened an investigat­ion that could lead to more pain. Since the scam was disclosed, the company’s stock has shed 7.8% of its value, or $ 19.5 billion, at a time when similar institutio­ns dropped only marginally.

And what about accountabi­lity? Well, the executive who oversaw the unit that created 2 million unauthoriz­ed accounts is leaving the company with a $ 124.6 million golden parachute.

There have been other postcrisis episodes of banks engaging in crazy and fraudulent schemes to make funny money for undeservin­g insiders. But this has to be among the most dishearten- ing. Wells Fargo was one of the better behaved banks during the housing bubble. And, until this episode, it was thought by many investors to be America’s premier megabank.

CEO John Stumpf's handling of the unfolding scandal has hardly instilled much confidence. He has repeatedly tried to minimize the number of people involved, and he has not dismissed anyone but low- and mid- level employees. On Tuesday, he is scheduled to testify before a Senate committee.

The episode shows the culture that led to the financial crisis has not been extinguish­ed in major banks, and tough federal oversight of the industry remains necessary, despite efforts in Congress to neuter the Consumer Financial Protection Bureau.

Banks still have people willing to break the rules to make money. They still have results- focused top executives who don’t want to know precisely how those results were achieved. Big banks have more ways that insiders can manipulate results or engage in scams than companies in, say, manufactur­ing or retail. And at the same time, banks rely more heavily on incentive pay than most other industries.

If the Wells Fargo incident tells us anything, it’s that banking’s Wild West days aren’t entirely a thing of the past.

 ?? NICHOLAS KAMM, AFP/ GETTY IMAGES ?? Wells Fargo’s CEO is scheduled to testify on Tuesday.
NICHOLAS KAMM, AFP/ GETTY IMAGES Wells Fargo’s CEO is scheduled to testify on Tuesday.

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