# Is Wells Fargo "a criminal enterprise"?

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Bystander
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When I look at the cases and charges it make me wonder.
Thee and me, both.

Borg
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Every four months, I use the official government site to get my free credit report from one of the three reporting agencies. We also keep credit card receipts and validate them against the monthly statement. The same goes for all of our banking statements. If I had been a Wells Fargo customer, I would have spotted it quickly and dealt with it immeadiately - including the activation of a fraud alert with all three agencies.

russ_watters
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Thee and me, both.
Yes, and while I don't know the full details/history, it surprises me that they haven't been raided by the FBI yet. I think they are the next ENRON.

Bystander
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it surprises me that they haven't been raided by the FBI yet.
It surprises me that Comey and the "Feebs" haven't been raided yet.

russ_watters
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It surprises me that Comey and the "Feebs" haven't been raided yet.
They are not feeble, they are picky based on politics. Drugs? OK. Abuse of classified information? Not a problem. Illegal immigration [different department, but same problem]? Back off. But that's part of why I am so surprised: bankers are enemy #1.

Trouble is Wells Fargo is just the one that got caught. Most banks are doing something shady. 2008 taught them nothing. I hope Wells Fargo goes down. What they did was pretty much unthinkable. I don't know how any could bank with them again. What makes me think they will survive just fine is that their stock has not crashed.

CalcNerd
russ_watters
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I hope Wells Fargo goes down. What they did was pretty much unthinkable. I don't know how any could bank with them again. What makes me think they will survive just fine is that their stock has not crashed.
That's probably "too big to fail" hubris. And they may be right: it is really really hard to shut down a bank. You can't just shut down, close all the accounts and send everyone a check for what is in their account -- that money doesn't exist (it's been loaned-out).

What would have to happen is that the government has to wipe out the shareholder value and force them to sell the company for pennies (a la 2008).

That's probably "too big to fail" hubris. And they may be right: it is really really hard to shut down a bank. You can't just shut down, close all the accounts and send everyone a check for what is in their account -- that money doesn't exist (it's been loaned-out).
The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.

russ_watters
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The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.
Yeah, I get that. [google] In 2008, the banks failed, were siezed by the government because there was no other choice, and then sold. This time, they would have to be siezed without first failing, which they would almost certainly fight.

mheslep
Gold Member
Trouble is Wells Fargo is just the one that got caught. Most banks are doing something shady...
That's 6,799 FDIC insured US banks (as Feb 2014) doing the shady. Govt owned Fannie Mae, Freddie Mac too, underwriting the paper for almost all US mortgages now.

vela
Staff Emeritus
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The bank shuts down when there is a run to close accounts by members. I think this is a case where most WF account owners are clueless.
I don't get why there hasn't been a mass exodus from Wells Fargo by its customers, particularly by the ones who were victims of the fraud.

mheslep
Gold Member
I don't get why there hasn't been a mass exodus from Wells Fargo by its customers, particularly by the ones who were victims of the fraud.
New checks, new credit cards, new online bill pay, ....

Staff Emeritus
2019 Award
I don't get why there hasn't been a mass exodus from Wells Fargo by its customers
One could argue that they are the bank that is being looked at most closely, and therefore the safest. Now, anyway.

What makes me think they will survive just fine is that their stock has not crashed.
But it has - it's lost $28B in market cap. For which they pay Mr. Stumpf tens of millions of dollars. (Heck, I could do that for a fraction of the cost!) This is the problem with weak boards, and I hope every last one of them has the pants sued off for failing in their fiduciary duty. I don't believe Mr. Stumpf was aware of the situation, but it was his job to be aware. He failed at that, and as a result the shareholders lost billions. jim mcnamara and Astronuc mheslep Gold Member For which they pay Mr. Stumpf tens of millions of dollars. Not so many millions as before. .... rebuke the board handed down Tuesday when it announced Mr. Stumpf had agreed to forgo all unvested equity awarded to him, worth$41 million; not take a 2016 bonus; take no salary during an independent board investigation; ....
If the WF board sacks him he looses $23 million in annual compensation going forward, and I doubt he'll be able to do the banking shuffle onto another board. Time for Stumpf to start selling his memoir. phinds Science Advisor Gold Member 2019 Award Is Wells Fargo "a criminal enterprise"? It's a large, "too big to fail" bank. That it is a criminal enterprise is a tautology. Vanadium 50 Staff Emeritus Science Advisor Education Advisor 2019 Award That it is a criminal enterprise is a tautology. I don't think this is helpful. Do you want banks to think "They will treat us as criminals no matter what, so we might as well..." phinds Science Advisor Gold Member 2019 Award I don't think this is helpful. Do you want banks to think "They will treat us as criminals no matter what, so we might as well..." Seems to me they are already doing it AND getting away with it. mheslep Gold Member Seems to me they are already doing it AND getting away with it. US has 7000 banks. They are not all Wells Fargo. phinds Science Advisor Gold Member 2019 Award US has 7000 banks. They are not all Wells Fargo. Nor are they all "too big to fail". Please read exactly what I said, not extrapolate it to something I did not say. mheslep Gold Member How big then is too big, big enough to automatically become criminal? russ_watters and Vanadium 50 Vanadium 50 Staff Emeritus Science Advisor Education Advisor 2019 Award While I do like msheslep's question, the Wells Fargo scandal has nothing to do with "too big to fail". Indeed, it's shocking how little money they made, considering the risks they took. They reportedly made$2.6M on 2M fraudulent accounts. That's $1.30 per account. At$10/hour (surely low) paid to their employees, if it takes more than 8 minutes (also surely low) to set up a fraudulent account, Wells Fargo actually lost money on the transaction.

The fine is 60x more than they made, and the lost valuation was almost 1100x more than they made.

This is why I believe Stumpf is an inept bumbler more than a criminal mastermind.

phinds
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2019 Award
How big then is too big, big enough to automatically become criminal?
I don't have a definition but I'm pretty sure there has been a formal government list of somewhere between 10 and 15 banks that are considered "too big to fail".

phinds
Gold Member
2019 Award
While I do like msheslep's question, the Wells Fargo scandal has nothing to do with "too big to fail". Indeed, it's shocking how little money they made, considering the risks they took. They reportedly made $2.6M on 2M fraudulent accounts. That's$1.30 per account. At \$10/hour (surely low) paid to their employees, if it takes more than 8 minutes (also surely low) to set up a fraudulent account, Wells Fargo actually lost money on the transaction.

The fine is 60x more than they made, and the lost valuation was almost 1100x more than they made.

This is why I believe Stumpf is an inept bumbler more than a criminal mastermind.
I agree. My comments did get off track from the original discussion, but not by that much, I think.

mheslep
Gold Member
. Indeed, it's shocking how little money they made, considering the risks they took.
Im not so sure. In Congressional testimony, one member pointed out that WF was publicizing to investors the news that it had a large share of accounts opened by customers, and Rep X offered this as evidence that WF knew at the highest levels exactly what was going on. I can't lay hands on the quotes now, but the point is the stock price might have been expected to rise on the news, due to some kind of future expected income based on the number of accounts.

Edit: example article on WF from 2012:

The Art Of The Cross-Sell
...Every financial services company tries to master “cross-selling,” offering pre-existing customers multiple products. Wells Fargo, which averages 5.9 products per customer in its retail banking business, does it better than anyone. The average household has roughly 16 products—mortgages, checking accounts, credit cards, 401(k)s, IRAs, various insurance policies and the like—across various financial institutions. Wells and its rivals compete fiercely to own as much of your wallet as possible.

“When I first became CEO, I got a call from another big bank CEO who said, ‘I’m coming through town. You guys are big in this cross-sell. I’ll buy you lunch. Tell me how you do it,’” recalls Wells Chief John Stumpf. “I told him, ‘I can’t eat that long and I can’t eat that much because it would take hours—days—weeks to talk about it.’”
"Products" as mentioned above would include, for example: credit card, checking account, mortgage, car loan, IRA, stock brokerage, etc.

Edit: Motivation for cross-selling:
Why Cross-selling Is So Critical
Before we dive into how to approach cross-selling, it’s important to know why cross-selling delivers such profitable returns.

It’s cheaper than acquisition. It’s 8-10 times more costly to acquire new customers than to sell additional products to ones you already have. Plus, cross-selling is also a safe and stable way to generate core deposits, compared to more expensive liquidity options.

It improves retention. Dramatically. On average, a customer with just one product at a bank will stay with the institution for about 18 months. By adding just one more product, you extend that relationship (and income) to four years. At three products, that relationship will last an average of 6.8 years.

It increases wallet share. Community banks typically hold 35-50 percent of a customer’s wallet share. That’s how much of the customer’s assets – including checking, savings, money-market accounts, and such – are held at the same institution. You want the lion’s share. This strategy can help you grab it.

It broadens your profit base. A significant feat, since only 1-2 percent of a bank’s customers usually account for almost all its profitability. Clearly, a lot of customers add very little to your bottom line. Crossselling can bring diversity and strength to the group you rely on the most.

It’s a “now” opportunity. Experts say a customer won’t consider changing a primary banking relationship unless a disruptive event occurs.

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