Three former Wells Fargo community banking executives have agreed to cooperate with federal regulators in a probe and pay fines relating to allegations of sales practice misconduct, deepening troubles for the firm.
The U.S. Office of the Comptroller of the Currency said Monday that as a result of misconduct, former Wells Fargo Community Bank Group Finance Officer Matthew Raphaelson will pay $925,000 and be banned from working in the banking industry. Keith Zimmerman, former head of community bank deposit products, will pay $400,000, while former human resources head Tracy Kidd will be fined $350,000.
The fines follow earlier penalties the OCC imposed on eight other former Wells Fargo executives in January, including a $17.5 million penalty for ex-CEO John Stumpf. The agency said the bank fostered an abusive sales culture that pressured employees into creating millions of fraudulent savings and checking accounts for customers without their consent.
In connection with the regulator’s investigation, Wells Fargo paid $185 million in fines in 2016 and has been subject to a $1.95 trillion asset cap imposed by the U.S. Federal Reserve for the past two years. The bank has struggled to shake off regulatory scrutiny in the past, including the most recent allegations of sales practice misconduct. The ongoing probe comes as the San Francisco-based bank suffers sagging income amid the coronavirus pandemic.
Monday’s settlement indicates that investigation is likely to continue, with the three executives agreeing to cooperate with the OCC in any future investigation, litigation or administrative proceeding related to the bank’s sales practices misconduct.
“The OCC actions against former employees regarding their behavior around the historical community banking sales practices are consistent with our belief that we should hold ourselves and individuals accountable and that significant parts of the operating model of our community bank were flawed at that time,” Wells Fargo spokesperson Jennifer Langan said.
“At the time of the sales practices issues, the company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct,” Langan said.
Langan added that over the past four years, Wells Fargo “has made fundamental changes to its business model, compensation programs, leadership, and governance.”
The bank has taken heat from other enforcement agencies in recent months, including two Financial Industry Regulatory Authority penalties in late August and early September over failure to supervise investment employees.
Wells Fargo must show compliance improvements before the Federal Reserve will remove its balance sheet cap, though the central bank did somewhat ease the cap in April to facilitate Paycheck Protection Program loans.
The bank has also been badly battered during the coronavirus pandemic, reporting a $2.4 billion loss in April through June — its first quarterly loss since 2008.
When announcing the earnings, CEO Charlie Scharf said the bank would drastically reduce its dividend and cut $10 billion in costs, including through layoffs.
Scharf, who was appointed last year with a mandate to clean up the bank’s compliance division, blamed the asset cap in part for the dramatic loss.
Wells Fargo last week further trimmed its net income estimates for the year from between $41 billion and $42 billion down to $40.5 billion.
Massive banks deemed “systemically important” are overall better prepared to weather the coronavirus-related economic downturn than the banking system as a whole, Moody’s said in a Thursday report.
Yet the ratings agency also criticized Wells Fargo’s compliance issues and asset cap when lowering its outlook from “stable” to “negative” earlier this month, making it the only U.S. systemically important bank with a negative rating.