Is Wells Fargo "a criminal enterprise"?

[nsaspook]

http://money.cnn.com/2016/09/29/news/wells-fargo-servicemembers-cars/index.html
http://money.cnn.com/2016/09/29/investing/wells-fargo-john-stumpf-hearing-congress/index.html?iid=EL
http://time.com/money/4510482/wells-fargo-fake-accounts-class-action-lawsuit/
https://scholar.google.com/scholar_case?case=3151322816805609011&hl=en&as_sdt=6&as_vis=1&oi=scholarr

When I look at the cases and charges it makes me wonder.

 

[Bystander]

When I look at the cases and charges it make me wonder.

Thee and me, both.

 

[Borg]

Every four months, I use the official government site to get my free credit report from one of the three reporting agencies. We also keep credit card receipts and validate them against the monthly statement. The same goes for all of our banking statements. If I had been a Wells Fargo customer, I would have spotted it quickly and dealt with it immeadiately - including the activation of a fraud alert with all three agencies.

 

[russ_watters]

Thee and me, both.

Yes, and while I don't know the full details/history, it surprises me that they haven't been raided by the FBI yet. I think they are the next ENRON.

 

[Bystander]

it surprises me that they haven't been raided by the FBI yet.

It surprises me that Comey and the "Feebs" haven't been raided yet.

 

[russ_watters]

It surprises me that Comey and the "Feebs" haven't been raided yet.

They are not feeble, they are picky based on politics. Drugs? OK. Abuse of classified information? Not a problem. Illegal immigration [different department, but same problem]? Back off. But that's part of why I am so surprised: bankers are enemy #1.

 

[Greg Bernhardt]

Trouble is Wells Fargo is just the one that got caught. Most banks are doing something shady. 2008 taught them nothing. I hope Wells Fargo goes down. What they did was pretty much unthinkable. I don't know how any could bank with them again. What makes me think they will survive just fine is that their stock has not crashed.

 

[russ_watters]

I hope Wells Fargo goes down. What they did was pretty much unthinkable. I don't know how any could bank with them again. What makes me think they will survive just fine is that their stock has not crashed.

That's probably "too big to fail" hubris. And they may be right: it is really really hard to shut down a bank. You can't just shut down, close all the accounts and send everyone a check for what is in their account -- that money doesn't exist (it's been loaned-out).

What would have to happen is that the government has to wipe out the shareholder value and force them to sell the company for pennies (a la 2008).

 

[Greg Bernhardt]

That's probably "too big to fail" hubris. And they may be right: it is really really hard to shut down a bank. You can't just shut down, close all the accounts and send everyone a check for what is in their account -- that money doesn't exist (it's been loaned-out).

The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.

 

[russ_watters]

The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.

Yeah, I get that. [google] In 2008, the banks failed, were siezed by the government because there was no other choice, and then sold. This time, they would have to be siezed without first failing, which they would almost certainly fight.

 

[mheslep]

Trouble is Wells Fargo is just the one that got caught. Most banks are doing something shady...

That's 6,799 FDIC insured US banks (as Feb 2014) doing the shady. Govt owned Fannie Mae, Freddie Mac too, underwriting the paper for almost all US mortgages now.

 

[vela]

The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.

I don't get why there hasn't been a mass exodus from Wells Fargo by its customers, particularly by the ones who were victims of the fraud.

 

[mheslep]

I don't get why there hasn't been a mass exodus from Wells Fargo by its customers, particularly by the ones who were victims of the fraud.

New checks, new credit cards, new online bill pay, ...

 

[Vanadium 50]

I don't get why there hasn't been a mass exodus from Wells Fargo by its customers

One could argue that they are the bank that is being looked at most closely, and therefore the safest. Now, anyway.

What makes me think they will survive just fine is that their stock has not crashed.

But it has - it's lost $28B in market cap. For which they pay Mr. Stumpf tens of millions of dollars. (Heck, I could do that for a fraction of the cost!) This is the problem with weak boards, and I hope every last one of them has the pants sued off for failing in their fiduciary duty. I don't believe Mr. Stumpf was aware of the situation, but it was his job to be aware. He failed at that, and as a result the shareholders lost billions.

 

[mheslep]

For which they pay Mr. Stumpf tens of millions of dollars.

Not so many millions as before.

... rebuke the board handed down Tuesday when it announced Mr. Stumpf had agreed to forgo all unvested equity awarded to him, worth $41 million; not take a 2016 bonus; take no salary during an independent board investigation; ...

If the WF board sacks him he looses $23 million in annual compensation going forward, and I doubt he'll be able to do the banking shuffle onto another board. Time for Stumpf to start selling his memoir.

 

[phinds]

Is Wells Fargo "a criminal enterprise"?

It's a large, "too big to fail" bank. That it is a criminal enterprise is a tautology.

 

[Vanadium 50]

That it is a criminal enterprise is a tautology.

I don't think this is helpful. Do you want banks to think "They will treat us as criminals no matter what, so we might as well..."

 

[phinds]

I don't think this is helpful. Do you want banks to think "They will treat us as criminals no matter what, so we might as well..."

Seems to me they are already doing it AND getting away with it.

 

[mheslep]

Seems to me they are already doing it AND getting away with it.

US has 7000 banks. They are not all Wells Fargo.

 

[phinds]

US has 7000 banks. They are not all Wells Fargo.

Nor are they all "too big to fail". Please read exactly what I said, not extrapolate it to something I did not say.

 

[mheslep]

How big then is too big, big enough to automatically become criminal?

 

[Vanadium 50]

While I do like msheslep's question, the Wells Fargo scandal has nothing to do with "too big to fail". Indeed, it's shocking how little money they made, considering the risks they took. They reportedly made $2.6M on 2M fraudulent accounts. That's $1.30 per account. At $10/hour (surely low) paid to their employees, if it takes more than 8 minutes (also surely low) to set up a fraudulent account, Wells Fargo actually lost money on the transaction.

The fine is 60x more than they made, and the lost valuation was almost 1100x more than they made.

This is why I believe Stumpf is an inept bumbler more than a criminal mastermind.

 

[phinds]

How big then is too big, big enough to automatically become criminal?

I don't have a definition but I'm pretty sure there has been a formal government list of somewhere between 10 and 15 banks that are considered "too big to fail".

 

[phinds]

While I do like msheslep's question, the Wells Fargo scandal has nothing to do with "too big to fail". Indeed, it's shocking how little money they made, considering the risks they took. They reportedly made $2.6M on 2M fraudulent accounts. That's $1.30 per account. At $10/hour (surely low) paid to their employees, if it takes more than 8 minutes (also surely low) to set up a fraudulent account, Wells Fargo actually lost money on the transaction.

The fine is 60x more than they made, and the lost valuation was almost 1100x more than they made.

This is why I believe Stumpf is an inept bumbler more than a criminal mastermind.

I agree. My comments did get off track from the original discussion, but not by that much, I think.

 

[mheslep]

. Indeed, it's shocking how little money they made, considering the risks they took.

Im not so sure. In Congressional testimony, one member pointed out that WF was publicizing to investors the news that it had a large share of accounts opened by customers, and Rep X offered this as evidence that WF knew at the highest levels exactly what was going on. I can't lay hands on the quotes now, but the point is the stock price might have been expected to rise on the news, due to some kind of future expected income based on the number of accounts.

Edit: example article on WF from 2012:

The Art Of The Cross-Sell

...Every financial services company tries to master “cross-selling,” offering pre-existing customers multiple products. Wells Fargo, which averages 5.9 products per customer in its retail banking business, does it better than anyone. The average household has roughly 16 products—mortgages, checking accounts, credit cards, 401(k)s, IRAs, various insurance policies and the like—across various financial institutions. Wells and its rivals compete fiercely to own as much of your wallet as possible.

“When I first became CEO, I got a call from another big bank CEO who said, ‘I’m coming through town. You guys are big in this cross-sell. I’ll buy you lunch. Tell me how you do it,’” recalls Wells Chief John Stumpf. “I told him, ‘I can’t eat that long and I can’t eat that much because it would take hours—days—weeks to talk about it.’”

"Products" as mentioned above would include, for example: credit card, checking account, mortgage, car loan, IRA, stock brokerage, etc.

Edit: Motivation for cross-selling:

Why Cross-selling Is So Critical
Before we dive into how to approach cross-selling, it’s important to know why cross-selling delivers such profitable returns.

It’s cheaper than acquisition. It’s 8-10 times more costly to acquire new customers than to sell additional products to ones you already have. Plus, cross-selling is also a safe and stable way to generate core deposits, compared to more expensive liquidity options.

It improves retention. Dramatically. On average, a customer with just one product at a bank will stay with the institution for about 18 months. By adding just one more product, you extend that relationship (and income) to four years. At three products, that relationship will last an average of 6.8 years.

It increases wallet share. Community banks typically hold 35-50 percent of a customer’s wallet share. That’s how much of the customer’s assets – including checking, savings, money-market accounts, and such – are held at the same institution. You want the lion’s share. This strategy can help you grab it.

It broadens your profit base. A significant feat, since only 1-2 percent of a bank’s customers usually account for almost all its profitability. Clearly, a lot of customers add very little to your bottom line. Crossselling can bring diversity and strength to the group you rely on the most.

It’s a “now” opportunity. Experts say a customer won’t consider changing a primary banking relationship unless a disruptive event occurs.

 

[OmCheeto]

... I hope Wells Fargo goes down.

Ha! You caught me. I checked the short selling stats on Wells Fargo when you posted this.
Silly me. I should have known that there'd be some kind of "professional courtesy" going on.
Fun to think about though, how much money "that person" will be make, if and when they go down.

What they did was pretty much unthinkable. I don't know how any could bank with them again.

Credit Union, here.

Well, ok... as usual, a bit of an exaggeration.
One credit union, 2 banks, and a brokerage .

What makes me think they will survive just fine is that their stock has not crashed.

Either short squeezing, or "they" know we're* finally on to them, IMHO.

----------------------
*Ok, maybe only 10 people have seen that movie, so "we're" might also a bit of a stretch, also...

 

[Vanadium 50]

but the point is the stock price might have been expected to rise on the news

It's 0.1% of income. How much do you think the price would rise on an income increase of 0.1%?

 

[mheslep]

It's 0.1% of income. How much do you think the price would rise on an income increase of 0.1%?

The amount the bank stood to make is more than the direct income from the new fake accounts alone. See the interest banks have in cross selling above. The more "products" the bank has with a customer, the greater the likelihood the customer will select yet more products. The IRA, CD, the refi-mortgage, etc. And stock prices don't reflect just income, but also income potential, which is in part gauged by bank investors observing the average number of products held by bank customers (faked or not). Wells Fargo led the industry in this metric (via fraud).

 

[mheslep]

I think they are the next ENRON.

Not from this fraud. ENRON bungled large securities bets, like Lehman. When the market collapsed, the firms literally became worthless. Wells Fargo is not in that position. Even if all management and the board was found guilty of fraud and went to jail, the assets of the company are still large.

 

[mheslep]

I hope Wells Fargo goes down.

Do you mean those responsible are fired or even criminally held responsible, or do you literally want the bank to disappear. 265 thousand employees.

 

[russ_watters]

Not from this fraud. ENRON bungled large securities bets, like Lehman. When the market collapsed, the firms literally became worthless. Wells Fargo is not in that position. Even if all management and the board was found guilty of fraud and went to jail, the assets of the company are still large.

The ENRON fraud included fraud by their accounting firm, Arthur Andersen, which lost its license to do accounting and had to shut down. I could see such a thing happening to Wells Fargo.

Do you mean those responsible are fired or even criminally held responsible, or do you literally want the bank to disappear. 265 thousand employees.

If the bank disappeared, the employees (most of them) would not lose their jobs, they'd just have their offices/branches acquired and converted to whatever bank bought Wells Fargo.

 

[Greg Bernhardt]

Do you mean those responsible are fired or even criminally held responsible, or do you literally want the bank to disappear. 265 thousand employees.

Yes you are right just those involved.

 

[Kevin McHugh]

US has 7000 banks. They are not all Wells Fargo.

But they are all criminal enterprises. Fractional reserve banking is a ponzi scheme. If you or I did it, we would go to prison. Banks get away with it, because the banksters rigged the system with bought politicians in the 17th and 18th centuries.

 

[russ_watters]

But they are all criminal enterprises. Fractional reserve banking is a ponzi scheme. If you or I did it, we would go to prison. Banks get away with it, because the banksters rigged the system with bought politicians in the 17th and 18th centuries.

1. Ponzi scheme or not*, it is at face value wrong to call something that is legal illegal.
2. I own a house, for which I pay a mortgage. Ponzi scheme? I have never once possessed enough money to cover the value of my house.
3. *Not; fractional reserve banking bears little resemblance to a Ponzi scheme that I can see.

 

[OmCheeto]

1. Ponzi scheme or not*, it is at face value wrong to call something that is legal illegal.
2. I own a house, for which I pay a mortgage. Ponzi scheme? I have never once possessed enough money to cover the value of my house.
3. *Not; fractional reserve banking bears little resemblance to a Ponzi scheme that I can see.

That's what I was thinking. I think I would have had to live at home with my parents until I was 35 to save up that much money.
And with six siblings, their 3 spouses, and their 6 kids, all in the same situation, in a 3 bedroom house?

Thank god, for fractional reserve banking...

ps. I have decided that I have no idea how to read the annual reports of financial institutions.
My credit union: 8 pages, of which two have numbers. [ref]
Wells Fargo: 273 pages, of which most have numbers. [ref]

Ain't nobody got time for that much maths...

hmmmm... My niece worked as an accountant for Arthur Andersen. Maybe I should call her up, and make her pay...