As was widely expected, Wells Fargo announced today that it has agreed to pay a $1 billion fine to the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau in what is the largest fine ever levied by the CFPB in its six-year existence.
The fine was levied over Wells’ shady sales practices, including the opening of millions of fraudulent accounts in its retail bank, and abuses in its auto-lending and mortgage lending divisions.
As a result, the company will need to adjust its already unremarkable first quarter results to factor in an additional non-tax-deductible accrual of $800 million, which shaves 16 cents off its EPS to 96 cents.
Wells Fargo & Company (WFC) announced today it has entered into consent orders with the Office of the Comptroller of the Currency (OCC) and Consumer Financial Protection Bureau (CFPB) that address matters pertaining to the company’s compliance risk management program and issues regarding certain interest rate-lock extensions on home mortgages and collateral protection insurance (CPI) placed on certain auto loans. The company has previously disclosed publicly the issues regarding interest rate-lock extensions and CPI.
“For more than a year and a half, we have made progress on strengthening operational processes, internal controls, compliance and oversight, and delivering on our promise to review all of our practices and make things right for our customers,” said Timothy J. Sloan, president and chief executive officer of Wells Fargo. “While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency. Our customers deserve only the best from Wells Fargo, and we are committed to delivering that.”
The orders, which are available in their entirety at the respective web sites for the OCC and CFPB, require the company to pay $1 billion in total civil money penalties. As a result, the company will adjust its first quarter 2018 preliminary financial results by an additional accrual of $800 million, which is not tax deductible. The accrual reduces reported first quarter 2018 net income by $800 million, or $0.16 cents per diluted common share, to $4.7 billion, or 96 cents per diluted common share.
Under the consent orders, Wells Fargo will also be required to submit, for review by its board, plans detailing its ongoing efforts to strengthen its compliance and risk management, and its approach to customer remediation efforts.
Like we said yesterday, while the fine is technically the “largest fine ever” levied by the CFPB, it’s essentially a slap on the wrist that pales in comparison to a recent DOJ fine of $14 billion levied against Deutsche Bank.
Wells Fargo shares are up 1.4% since the open, showing no discernible reaction to the news. Mick Mulvaney was appointed to lead the CFPB late last year after its previous director, Richard Cordray, stepped down. Initially, media organizations reported that Mulvaney was going to abandon the probe into Wells Fargo, a claim he denied, and has now definitively proven false.