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Wells Fargo's Internal Probe Reveals Impact on Small Firms

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Following Wells Fargo & Company’s (WFC - Free Report) internal investigation results, which brought into limelight some employees’ malpractices that reported false customer sales numbers, the U.S. lender now plans to streamline its credit card processing business, Wall Street Journal reported.

Such revelation brings into light the sales scandal that led the banking giant to enter into a $185-million settlement in Sep 2016 for resolving regulators’ claims of illegally opening millions of unauthorized accounts.

Wells Fargo’s internal enquiry reveals employees forcing some small firms to enter into expensive contracts with the bank as part of its aggressive sales strategy.

On an earnings conference call in January, President and CEO, Tim Sloan commented, “We've made progress on evaluating potentially unauthorized credit card accounts including any impact to customers' credit scores and analysis of credit signatures to verify authorization. We want to identify anyone who was negatively impacted so we can make things right.”

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. Further, suspension of business relations of the bank with states, including Illinois and California, were noted.

Hence, post scandal, the bank undertook a number of steps to restore its reputation. It initiated an internal probe and hired a consultant to review its 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 consistent growth in loans and deposits, and expansion moves should support its future prospects.

Currently, Wells Fargo carries a Zacks Rank #3 (Hold).

Shares of Wells Fargo gained 21.3% over the last six months, underperforming 26.4% growth recorded by the Zacks categorized Banks – Major Regional industry.



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