Wells Fargo faces scrutiny over lack of sales scandal disclosure
By Dan Freed and Ross Kerber
NEW YORK (Reuters) - A phantom account scandal at Wells Fargo & Co has put the U.S. bank's disclosure policies under a harsh spotlight.
Despite press reports that a federal regulator and the Los Angeles prosecutor were investigating sales practices at retail branches of the San Francisco-based lender, the bank, which agreed to a $190 million settlement, gave investors no indication of the scale of the problem.
The surprise spooked investors and has lopped roughly $19 billion off its market value since the probe disclosed last week that Wells employees had created roughly 2 million accounts for customers without their knowledge in order to meet internal sales targets. The bank has fired 5,300 people over the scandal.
While the settlement barely makes a dent in the $23 billion of profit the bank earned last year, the scandal's aftermath has caused a 7.5 percent drop in Wells' stock compared with a roughly 2.4 percent decline for the Dow Jones US Banks Index.
Investors, analysts and legal experts who spoke to Reuters said Wells Fargo' silence did not mean it had broken the law. But there is broad agreement that it made matters worse by not being more forthcoming with Chief Executive John Stumpf under pressure to explain why this happened on his watch.
"Look, they're lawyered up to the sky. They did the minimum legally required. Do I think that that's fair to investors or that that's all that investors need to know or want to know? No I do not," said Nell Minow, vice chair of ValueEdge advisors, a corporate governance advisory firm.
"It further diminishes their already significantly diminished credibility in terms of their willingness to be transparent."
Activist investors began filing shareholder resolutions with Wells Fargo on Thursday calling on the bank to split the roles of chairman and CEO, both held by Stumpf, in light of the recent scandal. Continued...