Wells Fargo woes

Wells Fargo has had a rough couple of weeks. The bank will pay $185 million in fines and settlements for having its employees set up 2 million false accounts—checking, savings and credit card accounts.

This led to congressional hearings which, to put it mildly, did not go well for Wells Fargo CEO John Stumpf. In fact, the poor fellow will have to give back $41 million of his compensation. No need to send him a food basket, though. Over the last 10 years, he’s been paid $192 million.

Predictably, Stumpf threw his employees under the bus, telling the Wall Street Journal, “The 1 percent that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do. … That’s a false narrative.”

And just as predictably, his tone-deaf comments did not go over very well. The stagecoach went off the road into a ditch. He should have just taken credit for teaching so many young people a key lesson—one that will help them succeed for their rest of their life: Crime pays, and financial crime pays really well.

It has certainly worked for Wells Fargo. Wells Fargo’s rap sheet includes fines and settlements for manipulating debit card purchases to maximize overdraft fees, municipal bond rigging, a $175 million settlement for discrimination charges against African-American and Hispanic borrowers, numerous settlements related to foreclosures during the housing crisis; the list goes on and on.

The end result of all its misdeeds is that Wells Fargo is one of the most profitable American banks. The institution made more than $20 billion in profit last year. Much of the extra profitability comes from the fact that its average customer has 6.15 financial products per household. That’s nearly four times the industry average, according to Los Angeles Times.

I believe these extra financial products were designed for Wells Fargo’s benefit, not its customers. In order to obtain so many extra accounts, Wells Fargo gave unrealistic sales quotas to its hourly employees. These employees, making an average of $12.40 an hour, had to make their quotas or be fired. To meet quota, they had to convince enough customers to sign up for credit cards, savings accounts, checking accounts, overdraft protection and other products. To meet quota, they cheated.

According to LA Times, which broke this story, to meet quotas, “employees have opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged client signatures on paperwork.” For these actions, they could avoid being fired, and also receive bonuses and often promotions.”

If and when the customers complained, the bank would say it was a mistake and correct it. But many customers just didn’t notice, and kept paying the fees.

For most crimes like burglary, mugging or shoplifting, one faces real risks—both physical risk and possible jail time. By comparison, financial crimes seem attractive. You can dress in nicer clothes—no ski masks needed. It appears no one will serve any jail time. Wells Fargo’s fine is less than 1 percent of this year’s profit.

Daytime work without heavy lifting. And if you do it right, big rewards.