Wells Fargo Corp. (WFC) will shell out a whopping $1 billion to settle U.S. investigations into its mistreatment of consumers, marking the largest ever fine on a U.S. bank. The announcement comes as a culmination of a year and a half of scandals facing the financial institution, including recent allegations that it forced customers into car insurance and charged mortgage borrowers unfair fees. (See also: Wells Faces Potential Record Fine Over Abuses.)
The highly anticipated settlement was announced Friday morning by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency. The bank indicated that the sanction wipes out $800 million off first-quarter profit, restating it to $4.7 billion after reporting $5.9 billion earlier in April.
The CFPB indicated that the fine was a response to how Wells Fargo administered a mandatory insurance program in its auto loan business and how it charged some borrowers for mortgage interest rate-lock products. As well as the hefty fee, the bank has promised to pay back the affected customers and make changes to its risk and compliance practices.
Multiple Scandals Since 2016
In 2016, the San Francisco-based bank, the nation's third largest, faced a fake-accounts scandal in which branch employees were incentivized to open millions of accounts under customers' names without their knowledge. Last year, the bank apologized for charging as many as 570,000 clients for auto insurance that they didn't need. An internal review by Wells Fargo concluded that roughly 20,000 of those customers may have defaulted on their car loans and had their vehicles repossessed. In October, Wells indicated that some mortgage borrowers were wrongfully charged for missing a deadline to lock in promised interest rates. In response to Wells Fargo's series of scandals, the Federal Reserve took bold action in February in an unprecedented punishment that restricted the bank's size to a maximum of $2 trillion in assets, its size at the end of 2017.
"We've certainly had a thorough look in every nook and cranny in the company, and we're continuing on that process," said Wells Fargo Chief Executive Officer Tim Sloan in a conference call last week. "But in terms of declaring victory and walking ahead, we're not at that spot right now."
Shares of Wells Fargo are up 1.4% on Friday morning at $52.27, reflecting a near 14% decline year-to-date (YTD) and a 2.3% loss over the most recent 12-month period, compared to the S&P 500's 0.5% increase and 14.1% return over the same respective periods. (See also: 10 Financial Stocks Poised to Outperform.)