I don’t need to belabor this point, but Wells Fargo & Co (NYSE:WFC) is a disaster. Supposedly one of the good banks, WFC and its laundry list of problems have been recently exposed. As it stands, Wells Fargo stock is down nearly 11%. If headlines are anything to go by, the once-revered financial institution will face even more challenges.
Bloomberg’s Joe Nocera wrote an excellent editorial about Wells Fargo and the public-relations crisis they have on their hands. Initially, Wells Fargo enjoyed a stellar reputation, which is what makes the current fiasco extremely difficult to stomach. They avoided the scandals surrounding the 2008 financial meltdown and Libor because they just weren’t involved.
That gave banking customers the impression that Wells Fargo was on the up-and-up. How wrong they were!
The big bank’s troubles began with accusations that lower-level employees were creating fake customer accounts to meet impossible sales targets. As our own Lawrence Meyers reported:
It was determined that between 2011 and 2016, and possibly going back to 2009, employees at Wells Fargo & Co created more than 1.5 million bank accounts that had not been authorized by consumers. It also created half a million unauthorized credit card applications.
That shocking revelation sent Wells Fargo stock plummeting in the markets. But at that time, the general public was more concerned about fake news than fake accounts.
When Donald Trump pulled off his shocking electoral victory, he gave all bank stocks, including JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), and Bank of America Corp (NYSE:BAC), a reprieve.
But now, President Trump’s novelty effect is losing steam. While fake news still triggers headlines, people are genuinely concerned about fake accounts and corporate shenanigans overall.
Unfortunately, this is terrible news for Wells Fargo stock, because the hits just keep coming.
Unbelievable List of Corporate Malfeasance Pressures Wells Fargo Stock
Honestly speaking, just the fake customer accounts scandal is bad enough. Collectively, we put our trust in these financial institutions, that they will protect our life savings. When that trust is violated, and in the most callous and conniving way, it’s nearly impossible to restore.
The litany of horrific controversies is too extensive for me to provide a comprehensive analysis. But here are three highlights that stood out to me as particularly pernicious:
- Wells Fargo admitted that senior managers retaliated against junior employees who attempted to blow the whistle.
- The Office of the Comptroller of the Currency accused WFC of “extensive and pervasive” violations of the Community Reinvestment Act. This broad violation included selling African-American homebuyers with more expensive mortgages compared to white homebuyers.
- The bank had to pay $5.4 million to the Department of Justice for illegally repossessing service members’ vehicles.
Any one of these or other violations that I didn’t mention could severely impact Wells Fargo stock. But I think the biggest one that most Americans just can’t stomach is the last. No matter what you do, you simply cannot hurt our men and women in uniform.
I don’t care about the $5.4 million penalty. Of course, that’s peanuts for a big bank. But I can guarantee you that this is the most expensive $5.4 million that Wells Fargo will pay, because no amount of money can immediately restore the company’s once-sterling reputation.
Wells Fargo violated the one demographic that must not be touched. Now, Wells Fargo stock will pay the price.
Unlike Prior Business Controversies
Over the last several months, I’ve had an opportunity to write about two massive controversies. The first one is Equifax Inc (NYSE:EFX). I stated that the Equifax data breach is “horrendous today, forgiven tomorrow.”
I’m sure it wasn’t a popular opinion, but from what we know it was a mistake. Granted, it was an unbelievably stupid one, and management’s handling was poor, to say the least. However, Equifax didn’t deliberately open the door for the hackers.
The other controversy I discussed involved Facebook Inc (NASDAQ:FB). People rallied under the #DeleteFacebook banner. Why? Because through convoluted relationships and transactions, a pro-Trump market research firm may have helped the Republicans secure victory.
But let’s be real, folks. Facebook CEO Mark Zuckerberg is as liberal as the day is long. He surely did not want Trump to win. Like Equifax, he made a mistake.
Wells Fargo? This was no mistake. Instead, almost every echelon of power committed inexcusable violations against their customers, just so they can make an extra buck. That many of these violations were racist and unpatriotic in nature may have killed Wells Fargo stock.
I understand that shares are doing okay given the circumstances, but don’t get complacent. WFC has courted disaster, and I don’t want any part of it.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.