Amid mounting litigation issues, the U.S. lender – Wells Fargo & Company (WFC - Free Report) – has once again caught regulators’ eyes. On Friday, 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. Moreover, for hiring or laying off senior executives along with changes in business plans, the board of directors will require prior approval from the OCC.
However, nothing was clear on OCC’s part regarding the changes in the terms of the agreement which was negotiated in September with the bank. At that time, the bank agreed to a $185 million fine for settling charges related to illegal customer accounts.
“We continue to cooperate with the OCC as well as all our regulators and will comply with these requirements,” said Jennifer Dunn, a Wells Fargo spokeswoman. She further added, “This will not inhibit our ability to execute our strategy, rebuild trust and serve our customers, and continue to operate the company for the benefit of all our stakeholders.”
After the disclosure of malpractices related to opening of around two million bank and credit card accounts without customer consent, Wells Fargo is facing issues with clients as they are reluctant to do business with the lender. Notably, post-scandal, the bank is disclosing the position of customer accounts monthly at its branches to let investors and the public know about the impact on bank.
In October, the bank witnessed a year-over-year plunge of 44% in new account openings, along with a sequential fall of 27%. The decline was chiefly due to the full-month impact of customers’ reaction to the sales malpractices settlement announced on Sep 8, 2016, and lower marketing activities. In addition, the customer-initiated account closures rose modestly by 3%, both from the prior year and the previous quarter. Also, the bank noted that survey results of customers’ satisfaction with their most recent visit were 73.9%, down from 77.4% in Oct 2015.
The allegation led to many setbacks involving 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).
However, post-scandal, the bank undertook many steps to restore its reputation. It initiated an internal probe and hired a consultant to review sales practices. Moreover, 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).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The Bank of New York Mellon Corporation (BK - Free Report) with a Zacks Rank #2 (Buy) has been witnessing upward estimate revisions for the last 30 days. So far this year, the company’s share price has been up more than 18.7%.
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Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 30 days. Also, the company’s shares have surged nearly 31.4% so far this year. It currently carries a Zacks Rank #2.
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