bank fiascos – Page 2 – Attestation Update

Efforts continuing to clean up fake account fiasco at Wells Fargo

Leave a Comment / Other stuff / By Jim Ulvog

October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog. — October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

There haven’t been a lot of high-profile articles about the Wells Fargo fake account fiasco recently. I’ve noticed a number of articles though, which suggest there is ongoing activity addressing the intentional, systemic failure. This disaster will not be cleared up soon.

How does Wells fix the indirect harm it caused?
New compensation plan removes cross-selling as a benchmark
Possible MD&A enforcement action?
Branches received 24 hour notice of internal inspections
Bank may eliminate 2016 bonuses for senior staff

12/27/16 – Wall Street Journal – Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case at a Time – Making customers whole will be easy if the customer was only charged a few dollars a month for a while. Still simple to resolve if there were monthly charges and a bunch of overdraft fees because money was taken out of an account unknowingly which resulted in some bounced checks.

What do you do when the unpaid fees on a credit card flowed into negative information on a credit report which resulted in a customer being denied funding for a home loan somewhere else? That’s what happened to one interviewed customer.

Destroying someone’s credit is a tough thing to make right.

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Minor updates on Wells Fargo fiasco

Leave a Comment / Other stuff / By Jim Ulvog

Concord stage coach at Wells Fargo museum in San Diego. Photo by James Ulvog.

Not a lot of news in the last few days about the Wells Fargo new account fiasco, but there are a few pieces of information.

12/12 – Reuters – Prudential stops distribution of policies sold through Wells Fargo – With the increased attention on the low-cost life insurance product from Prudential, called MyTerm, which was sold by Wells Fargo, the insurance company suspended sales of the product through the bank.

Article says that separately Wells Fargo suspended sales of renters insurance that goes through a different insurance company.

The California Insurance Commission has opened an investigation of the product sales.

Article says the California regulators says the New Jersey insurance regulator has also opened an investigation. Reporter cannot get confirmation from the New Jersey regulator.

12/16 – Francine McKenna at MarketWatch – Prudential allegations complicate Wells Fargo’s work with new partners – …

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More regulatory punishment for Wells Fargo. Another possible dimension of the fake account fiasco.

Leave a Comment / Other stuff / By Jim Ulvog

Wells Fargo 'mud wagon' at Seely Stable museum in San Diego' Old Town state park. Photo by James Ulvog. — Wells Fargo ‘mud wagon’ at Seely Stable museum in San Diego’s Old Town state park. Photo by James Ulvog.

More punishment on the way from the OCC.

Also, accusations emerged over the weekend that staff of Wells Fargo may have been opening insurance products from Prudential without customer permission. Keep in mind those are only accusations by terminated staff. If substantiated, this could be a new layer of the fake account scandal.

I previously mentioned OCC imposing additional consequences from the fake account scandal. Background for the next article:

11/18 – Wall Street Journal – Banking Regulator Imposes New Restrictions on Wells Fargo – Apparently the consent degree signed by Wells had some harsh language in it which was immediately waived by the OCC. On Friday the OCC unilateally revoked their waiver. As of now, Wells Fargo must get OCC permission before it hires or fires senior executives, before it make changes to the board of directors, and before making any “golden parachute” severance payments to executives. Approval will be required to changes in the bank’s business plans.

Update on that action: 11/20 – Wall Street Journal – Wells Fargo Grapples With OCC Move – Internal communication from the new CEO indicates the restrictions from OCC are not due to new developments. Sources for the article indicate uncertainty for the reason. Could be a bureaucratic reaction to criticism the OCC was slow to catch on to the issue or that the agency went too lightly on the bank.

Additional punishment…

12/9 – Wall Street Journal – Wells Fargo Likely Face Regulator Downgrade, harming Its Prospects – OCC may be downgrading Wells’ rating under the Community Reinvestment Act. This would be another round of extra-judicial punishment for the fake account fiasco.

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Update on Panama Papers – 11/22

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

Either there hasn’t been much going in the money laundering news or I’ve not paid enough attention. On the other hand, governmental investigations are run behind the scenes. Perhaps the regulators are working out of sight.

Here are a few articles I’ve noticed in the last few months.

7/28 – U.S. Prosecutors Probe ‘Panama Papers’ Law Firm’s Employees – Leaks say Department of Justice has opened an investigation of various staff in the D.C. office of Mossack Fonseca.

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A few more updates on the ongoing banking fiascos: Wells Fargo and J.P. Morgan

Leave a Comment / Other stuff / By Jim Ulvog

Odd development yesterday in the fake account fiasco at Wells Fargo. The OCC decided to get involved in lots of internal decisions at the bank.

The side fiasco of banks hiring relatives of clients in order to gain future business is off point from the banking fiascos I’ve been focused on. However, one settlement has caught my eye. Two articles describe the mess at J.P. Morgan.

11/18 – Wall Street Journal – Banking Regulator Imposes New Restrictions on Wells Fargo – Apparently the consent degree signed by Wells had some harsh language in it which was immediately waived by the OCC. On Friday the OCC unilaterally revoked their waiver.

As of now, Wells Fargo must get OCC permission before it hires or fires senior executives, before it make changes to the board of directors, and before making any “golden parachute” severance payments to executives. Advanced approval will be required to any changes in the bank’s business plans.

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More news on the Wells Fargo fake account fiasco

Leave a Comment / Other stuff / By Jim Ulvog

Concord stage coach at Wells Fargo museum in San Diego. Painting at top is of Old Town San Diego in its prime time. Photo by James Ulvog. — Concord stage coach at Wells Fargo museum in San Diego. Painting at top is of Old Town San Diego in its prime time. San Diego harbor is visible on left with Point Loma at the top. Photo by James Ulvog.

A few more articles on the fake account mess at the bank:

Wells Fargo is trying to get back on track.
Other banks are getting inquiries from the OCC about incentives to open accounts.
SEC is looking at possibility of missing disclosures.

On October 24 the bank ran a full-page color ad in the Wall Street Journal on the back of the A section. Article ran again a few days later. I’ll guess that is a rather expensive page anyway, especially for the whole page, even more so for a very pretty color photo. Nice shot of a Concord stage on the open prairies, by the way. Cool photo!

Several comments from the ad, which I will quote under fair use, which in any event I’m sure Wells Fargo is perfectly fine with me quoting.

Putting your interest first: We have eliminated product sales goals for our Retail Banking team members who serve customers in our bank branches and call centers. This means that their focus will be a meeting your financial needs, not meeting sales goals.

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In relation to the revenue Wells Fargo generates, the fees from fake accounts were trivial

2 Comments / Audits, Other stuff / By Jim Ulvog

Let’s take a look at the income generated by Wells Fargo from the dummy accounts their staff opened in relation to the revenue the bank generates. Let’s even consider the fine in relation to income over the four years the schemes were running. I have not spared criticism of the bank previously. But let’s look at this mess from another perspective.

Here’s the bottom line – Finding the fake account fiasco means finding this:

When hidden in this:

That’s one penny of false revenue for every one thousand six hundred dollars of legitimate revenue.

To start the discussion, consider Michael Rapoport’s article at the Wall Street Journal on November 1: Wells Fargo: Where Was the Auditor – Several of the Senators sent KPMG a letter last week suggesting the audit should have caught the fake account fiasco.

Article explains that audits aren’t designed (and aren’t capable of) finding frauds that don’t have a material impact on the financial statements.

Article makes the very important point that an audit designed to catch frauds as small as the fake account mess would have a cost so high as to make the audit completely unaffordable.

So let’s take a look at materiality in relation to the massive size of Wells Fargo.

Amounts for materiality discussion

Let’s look at some numbers for perspective.

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More news on the Wells Fargo fake account fiasco

Leave a Comment / Other stuff / By Jim Ulvog

October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog. Yeah, when I was there last week I got a bunch of new photos. — October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog. Yeah, while on vacation last week I got a bunch of new photos.

Lots of news to catch up on the Wells Fargo unauthorized account mess from when I was on vacation last week.

A few articles for your consideration:

What, if anything, should have been disclosed about the investigation while it was underway?
Disclosures likely in the next round of filings with SEC.
Hints the fake account fiasco could extend into the small business division.
Bank’s CEO resigns.
The Congress and CFPB were late to the party.
California AG opens investigation of possible identity theft.

9/29 – Michael Rapoport at Wall Street Journal – To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – Wells Fargo did not disclose the existence of the investigation and settlement talks regarding the fake account scandal.

Interesting question for companies and auditors arises: should it have been disclosed?

Article provides a good non-technical explanation of materiality:

Generally speaking, materiality depends on whether a reasonable investor would consider the information important enough to affect the investor’s decision to buy a company’s securities.

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Guess we might want to reallocate blame for that $5 billion trading loss at Societe Generale

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

Sometimes it's complicated. Photo courtesy of Adobe Stock. — Sometimes it’s complicated. Photo courtesy of Adobe Stock.

One thing I’ve learned while being in leadership at my church is that a conflict that appears simple to outsiders is usually far more complicated and messy and ugly than it appears, with blame for a conflict sometimes belonging to the party that appears innocent.

I’m slowly catching on that maybe that idea sometimes applies to massive financial fiascos. (Yeah, yeah, I know. I usually catch on really slow.)

Who is at fault?

Back in January 2008 a trader, Jérôme Kerviel, engaged in €50B of unauthorized trades for Société Générale and hid his trades. That’s fifty billion euros. He admits to making fake entries to hide his admittedly unauthorized trades.

Unwinding the trades cost the bank €4.9B.

I recall at the time that the story line was he was a rogue, a scoundrel, etc., doing all this by himself, etc., single handedly pulling off a huge scam, etc, cleverly wending his way between those tight internal controls, etc.

Criminal sentence

Previously, Mr. Kerviel was tried and convicted on criminal charges. His initial sentence was five years, which was reduced to two years (I think it was 2 but maybe was 3).

He served five months in prison, according to the following article.

Wrongful termination

Well, multiple parts of the French judicial system are saying that allocating the blame is a bit more complicated.

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Another fiasco at Wells Fargo and another round of hearings

Leave a Comment / Other stuff / By Jim Ulvog

Interior of Concord stagecoach at Wells Fargo's San Diego museum. Imagine sharing that bench for the 24 day run from St. Louis to San Francisco. Photo by James Ulvog. — Interior of Concord stagecoach at Wells Fargo’s San Diego museum. Imagine sharing that bench for the 24 day run from St. Louis to San Francisco. That’s round the clock for 24 days with the only stops to change horses and drivers. Photo by James Ulvog.

Wells Fargo got some more visibility this week for violating federal law on repossessing property from servicemembers on active duty. The CEO got another round of public thrashing, this time from the House of Representatives. The CEO and former head of community-banking forfeited a bunch of future compensation.

9/29 – Bloomberg – Wells Fargo Troubles Mount With Penalty for Soldiers’ Loans – Federal law has been in place since about 1940 that provides protection to servicemembers from collection efforts. The law currently says lenders have to get a court order before they repossess property from anyone who is on active duty. The law was rewritten in 2003 and has been updated since then.

The protections for servicemembers have only been around for, oh, about 75 years. Need I point out that is plenty of time for the compliance staff to catch on to the pertinent laws?

The Pentagon has a list of all active duty service members which lenders may access if they wish.

Two separate enforcement actions within two years against Wells Fargo for violations of that law suggests the bank may just have a systemic compliance issue.

The newest issue involves 413 alleged violations of the law. The bank agreed to pay $4 million for unlawful repossessions during a seven-year run. That’s an average restitution of about $10,000 each. In addition the OCC ordered the bank to pay a $20M fine for a decade’s worth of violations.

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Wells Fargo gets public whipping

Leave a Comment / Other stuff / By Jim Ulvog

Wells Fargo museum in San Diego's Old Town State Park. Photo by James Ulvog. — Wells Fargo museum in San Diego’s Old Town State Park. Photo by James Ulvog.

The Wells Fargo CEO got a good whuppin’ yesterday. The Senators each took their turn striving for the lead quote in the evening news.

As usual, the comments on Twitter are entertaining. Deep thoughts range from wanting to throw all the bankers in jail to one person lauding one senator for having personally discovered and exposed the fake account fiasco. Really. One of the senators found this mess.

If your knowledge of Cold War history extends to knowing what a show trial is, ponder the visuals and theatrics of the hearing. As I browsed through my twitter feed looking at the linked photos, show trial is what came to mind.

9/20 – Wall Street Journal – Whipping Wells Fargo / The bank blundered, and the politicians will make it pay – Editorial provides valuable perspective. Opening paragraph brings together multiple ideas, which I’ll quote under fair use:

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Prep reading for today’s hearings on Wells Fargo fiasco in Senate Banking committee

Leave a Comment / Other stuff / By Jim Ulvog

Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.

Before you tune in to the headlines generated by Senators striving for the best one-liner in hearings which will appear in the evening news, check out these background articles.

So far looks like there is stiff competition in the race for most outraged Senator. At the moment, Senator Warren is in the lead.

9/16 – CNN Money – Wells Fargo drumbeat grows louder. House launches investigation – The House Financial Service Committee will start hearings late in September. The Wells CEO has been called to testify.

The rhetorical trap already set by the minority chair of the Senate Banking Committee is that if senior management did not know this was going on then the bank is too big to manage. The choice, as she infers: senior management is complicit or the bank ought to be broken up.

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Pondering on the Wells Fargo fiasco and more news

Leave a Comment / Audits, Other stuff, Pondering / By Jim Ulvog

Original finish on mud wagon used by subcontractor to Wells Fargo on San Diego-Julian run in 1870s. Wagon is housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog. — Original finish is visible on mud wagon used by subcontractor to Wells Fargo on the San Diego-Julian run in 1870s. Lighter and cheaper than the Concord wagon, this was useful in desert and mountain areas. Wagon is housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog.

Here’s a few articles that were interesting to me in the last two days about the Wells Fargo fiasco, previously discussed here, here and here.

First, a digression into the ethics and audit issues of systemic faking of accounts and coding diesel engines to cheat.
Next, pondering whether there will be any clawback of the $124M bonuses from the senior executive who managed the retail banking area.
Finally, two articles describing the DoJ opening a preliminary investigation.

9/14 – Prof. Mike Shaub at Bottom Line Ethics – Plausible deniability and the insulation of upper management – Prof Shaub ponders two fiascos in the news for the deeper ethical issues. Both the Volkswagon diesel engine scheme and the Wells Fargo fake account fiasco reflect poorly not only on the companies and their culture, but the state of ethics in business and our society.

We, collectively, need to grapple with those issues.

The article raises unsettling issues for auditors. Let’s ponder for a moment…How can we detect corporate cultures and entity tone-at-the-top environments which allow building a cheating code into the core operation of a company’s software? How can we detect an environment that incentivizes staff to cheat customers or risk losing their jobs for not hitting sales targets? Those are sobering questions.

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Ripple effects spread out from Wells Fargo fake account fiasco

Leave a Comment / Other stuff / By Jim Ulvog

Concord stagecoach painted in Wells Fargo colors, housed at the Seeley Stable Museum Hazard Collection in Old Town San Diego Historic Park. April 2012 photo by James Ulvog. — Concord stagecoach painted in Wells Fargo colors, housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog.

Unlike nudging Libor or Forex rates, it is easy to grasp that it is wrong to open bank accounts without a customer’s permission. The ease of understanding the mess is why I think the Wells Fargo fiasco is growing rapidly.

Here’s my free tip of the day on how not to handle a crisis: don’t blame it on the employees who got fired for breaking the rules to meet sales quotes set by management. That is the current strategy of the CEO:

9/13 (in print edition on 9/14) – Emily Glazer (have seen her name a lot on this story) and Christina Rexrode at Wall Street Journal – Wells Fargo CEO Defends Bank Culture, Lays Blame With Bad Employees – In an interview with WSJ reporters on Tuesday, the CEO blamed the whole mess on misbehaving employees. He insisted there were not any incentives to improperly open accounts.

In the same interview, he indicated the bank will end its sales quotas for customer-facing staff.

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Followup on Wells Fargo opening accounts without customer permission

Leave a Comment / Other stuff / By Jim Ulvog

When the leading article from the Wall Street Journal mentioned earlier was placed on the front page of the print edition, the headline of

Wells Fargo Fined for Sales Scam

was in type 0.4 inches tall. Yes, I measured it.

That is the largest font I recall seeing on the front page in a long time. Maybe I don’t pay enough attention to font size, but still, that is the largest headline I recall lately. Isn’t quite the way you want to get your name on the front page of the Journal.

Here’s another article from the WSJ and a discussion from Rumbi Bwerinofa. Also, a study that quantifies the damage caused to senior executives earnings from the stigma gained by having a scandal-tainted company on their resumes.

9/9 – Emily Glazer at Wall Street Journal – Next Test for Wells Fargo: Its Reputation – The fiasco of opening accounts in customers’ names without their permission is a story that could cause reputational damage. Article says analysts are concerned and bank execs are worried how much this will damage earnings.

Difference with this mess from other banking fiascos is that this one is easy to explain and easy to understand.

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