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Wells Fargo (WFC) Under Scrutiny in California, New Jersey
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Legal issues continue to mount for Wells Fargo & Company (WFC - Free Report) . The third largest U.S. bank by assets is under the scrutiny of regulators in California and New Jersey. The bank will be investigated for signing up customers for Prudential Financial, Inc. (PRU - Free Report) life policies, without their consent.
Wells Fargo has come under regulators’ scrutiny, after former employees of Prudential alleged the latter, last week, in a whistleblower lawsuit for fraud and misconduct. The insurer has been accused of safeguarding Wells Fargo for deceptively opening Prudential’s low-cost MyTerm policies for clients without their permit. Notably, these employees were laid off, after they reported about the scam related to opening of policies by Wells Fargo without customers’ knowledge.
Both California and New Jersey regulators have geared up to scrutinize Prudential’s activities as well, along with Wells Fargo. Prudential and Wells Fargo are in partnership for selling the former’s insurance products to the bank's clients.
“Our first objective is to figure out the truth,” California Insurance Commissioner Dave Jones said. “The penalties can be quite severe if there is a violation. The purpose of the penalties is to discourage unlawful conduct and to hold accountable those that engage in unlawful conduct.”
Notably, Prudential restricted distribution of MyTerm life policies through Wells Fargo after the allegations surfaced. Moreover, the insurer will compensate the customers charged for coverage without their consent.
“We are deeply concerned about these allegations as they are completely counter to our values and our commitment to providing customers only the products and services they need and want,” Ancel Martinez, a bank spokesman, said in an e-mailed statement. “We are working with Prudential to investigate any unauthorized or inappropriate referrals,” added Martinez.
This investigation follows the bank’s $190-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts to meet their aggressive internal sales goals.
Conclusion
After the disclosure of malpractices related to opening of around two million bank and credit card accounts without customers’ consent, Wells Fargo has been facing issues with clients as they are reluctant to conduct business with the lender.
Further, investors’ disappointment was reflected in the share price movement. The shares, with a growth rate of 2.6% year to date, underperformed the 21.3% growth for the Zacks categorized Regional Banks-Major industry.
The allegation led to many setbacks, including the bank’s shattered image, numerous lawsuits; triggered federal and state investigations, congressional hearings, and the bank’s former CEO – John Stumpf – losing his job (Read: Will Tim Sloan be the Turnaround CEO for Wells Fargo?). Further, in Oct 2016, the state of Illinois suspended $30 billion in investment activity with Wells Fargo for “predatory and illegal banking practices.” (Read More: Wells Fargo Loses Illinois State Business in Latest Setback).
In addition, the Office of the Comptroller of the Currency (OCC) intimated the bank about taking regulatory approvals before making business decisions. Particularly, Wells Fargo is restricted from making “golden parachute” payments to its departing executives. Also, the board of directors will require prior approval from the OCC, for hiring or laying off senior executives, as well as bringing changes in business plans.
However, the bank has undertaken many steps to restore its reputation post exposure of the scam. It initiated an internal probe and hired a consultant to review its sales practices. Additionally, management proposed to eliminate sales goals for its retail banking business, earlier than planned.
While the current crisis at Wells Fargo will take some time to alleviate, we believe that continued growth in loans and deposits, and expansion moves should support its growth profile, going forward.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Comerica Inc. (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 66.2% so far, this year. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 35.8% so far, this year. It currently carries a Zacks Rank #2 (Buy).
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Wells Fargo (WFC) Under Scrutiny in California, New Jersey
Legal issues continue to mount for Wells Fargo & Company (WFC - Free Report) . The third largest U.S. bank by assets is under the scrutiny of regulators in California and New Jersey. The bank will be investigated for signing up customers for Prudential Financial, Inc. (PRU - Free Report) life policies, without their consent.
Wells Fargo has come under regulators’ scrutiny, after former employees of Prudential alleged the latter, last week, in a whistleblower lawsuit for fraud and misconduct. The insurer has been accused of safeguarding Wells Fargo for deceptively opening Prudential’s low-cost MyTerm policies for clients without their permit. Notably, these employees were laid off, after they reported about the scam related to opening of policies by Wells Fargo without customers’ knowledge.
Both California and New Jersey regulators have geared up to scrutinize Prudential’s activities as well, along with Wells Fargo. Prudential and Wells Fargo are in partnership for selling the former’s insurance products to the bank's clients.
“Our first objective is to figure out the truth,” California Insurance Commissioner Dave Jones said. “The penalties can be quite severe if there is a violation. The purpose of the penalties is to discourage unlawful conduct and to hold accountable those that engage in unlawful conduct.”
Notably, Prudential restricted distribution of MyTerm life policies through Wells Fargo after the allegations surfaced. Moreover, the insurer will compensate the customers charged for coverage without their consent.
“We are deeply concerned about these allegations as they are completely counter to our values and our commitment to providing customers only the products and services they need and want,” Ancel Martinez, a bank spokesman, said in an e-mailed statement. “We are working with Prudential to investigate any unauthorized or inappropriate referrals,” added Martinez.
This investigation follows the bank’s $190-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts to meet their aggressive internal sales goals.
Conclusion
After the disclosure of malpractices related to opening of around two million bank and credit card accounts without customers’ consent, Wells Fargo has been facing issues with clients as they are reluctant to conduct business with the lender.
Further, investors’ disappointment was reflected in the share price movement. The shares, with a growth rate of 2.6% year to date, underperformed the 21.3% growth for the Zacks categorized Regional Banks-Major industry.
The allegation led to many setbacks, including the bank’s shattered image, numerous lawsuits; triggered federal and state investigations, congressional hearings, and the bank’s former CEO – John Stumpf – losing his job (Read: Will Tim Sloan be the Turnaround CEO for Wells Fargo?). Further, in Oct 2016, the state of Illinois suspended $30 billion in investment activity with Wells Fargo for “predatory and illegal banking practices.” (Read More: Wells Fargo Loses Illinois State Business in Latest Setback).
In addition, the Office of the Comptroller of the Currency (OCC) intimated the bank about taking regulatory approvals before making business decisions. Particularly, Wells Fargo is restricted from making “golden parachute” payments to its departing executives. Also, the board of directors will require prior approval from the OCC, for hiring or laying off senior executives, as well as bringing changes in business plans.
However, the bank has undertaken many steps to restore its reputation post exposure of the scam. It initiated an internal probe and hired a consultant to review its sales practices. Additionally, management proposed to eliminate sales goals for its retail banking business, earlier than planned.
While the current crisis at Wells Fargo will take some time to alleviate, we believe that continued growth in loans and deposits, and expansion moves should support its growth profile, going forward.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Comerica Inc. (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 66.2% so far, this year. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 35.8% so far, this year. It currently carries a Zacks Rank #2 (Buy).
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>