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Thursday, 03 May 2018 06:38

Billion-Dollar Fine Won't Cut Into Wells Fargo's Profitable Pattern of Banking Abuses

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MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT

wellsfargo555Wells Fargo in the rogue's gallery of banks. (Photo: Mike Mozart)

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Founded in 1852, Wells Fargo & Company is the third largest bank in the United States, with locations in 43 states. It is also an exemplar of how banks deemed too big to fail continue to get slaps on the wrist from enforcement agencies while barreling ahead with abusive practices. The illegal banking practices that provoked the Consumer Protection Financial Bureau (CPFB) to slap Wells Fargo with a $1 billion fine in April represented only the latest installment in a long list of abuses by the financial company, which evokes images of the "Wild West" in its logo.

Imposed for illegal practices in the bank's auto loan division, the penalty may seem massive. However, Public Citizen, a DC-based progressive advocacy organization -- noted in a news release that the fine is not going to cause a dent in Wells Fargo's earnings:

Shareholders, who will be footing the bill for this fine, did not conceive, oversee and conceal this massive fraud. Wells Fargo executives did. When Washington prosecutes them, Wells Fargo and other bankers will understand what justice should mean.

Meanwhile, the Republican corporate tax cut more than offsets this penalty [of $1 billion]. The firm reportedly posted a $3.35 billion benefit from the new law. Wells Fargo is spending some of this benefit on share buybacks, which boost the price and senior management compensation. On balance, these are good times for Wells Fargo executives.

The Wall Street Journal (WSJ) offered an idea of how impervious banks such as Wells Fargo are to sound banking practices. They are so massively profitable, they can easily weather government enforcement. The WSJ reported on the bank's 2017 profit earlier this year:

Wells Fargo & Co. said its fourth-quarter profit rose 17% as a boost from the new tax law helped mask weakness in some of the bank’s main businesses....

The bank reported a profit of $6.15 billion, or $1.16 a share. Excluding one-time impacts related to the tax law passed late last year, the sale of an insurance business and a large legal reserve, earnings were 97 cents a share. That compares with $5.27 billion, or 96 cents a share, in the same period of 2016.

This failure to seriously hold financial institutions accountable dates back years, and the Obama administration is also responsible for it. As I wrote in 2013, this amounts to a "Wall Street protection racket." Violating the law and taking advantage of consumers is just the cost of doing business. The benefits far outweigh the risks of behaving badly.

In fact, I wrote in the headline of a 2016 commentary that "Big Bad Big Banks Continue to Behave Badly" -- and the federal government does little to make it economically painful for them to do otherwise. I noted at the time that banking giant HSBC had been openly accepting drug cartel money, but the fine for doing so probably didn't exceed the profit. The federal government applies a similarly enabling approach to bank executives. They are sometimes fined, but with stocks, stock options and multi-million dollar salaries, they rarely, if at all, endure serious financial setbacks. Committing banking fraud is just another business strategy.

The result is the behavior of banks such as Wells Fargo, which appears to do little to curb illegal banking practices. In September of 2016, BuzzFlash wrote that Wells Fargo even illegally repossessed cars owned by veterans. Indeed, in September of 2016, at a hearing before a congressional committee, the then Wells Fargo President John Stumpf was accused of running a "criminal enterprise," according to CNN:

Rep. Michael Capuano on Thursday said the Wells Fargo (WFC) scandal and the people who lead the bank reminded him of "the guys who ran Enron," evoking a company that was found guilty of massive financial fraud.

Capuano said Stumpf is "clearly and unequivocally guilty" of a range of crimes, including conspiracy to commit fraud, conspiracy to commit identity theft and racketeering....

[Stumpf] was repeatedly cut off by members of Congress, Republican and Democrat, who pummeled him by comparing him to an actual bank robber and calling Wells Fargo a "school for scoundrels" with a "broken culture," among other things.

Since Stumpf's departure, things haven't changed much according to an April 24 CNN Money list of the financial scandals that have rocked the bank. After all, as stated above, there is profit to be made in breaking the law. The CNN Money article offers these two examples of abuses from 2017 and 2018:

  • Regulators say Wells Fargo sold dangerous investments it didn't understand. Regulators order the bank to pay back $3.4 million to brokerage customers because advisers recommended products that were "highly likely to lose value over time." Wells Fargo does not admit to nor deny the charges.

  • The city of Sacramento, California, accuses Wells Fargo of a "long-standing pattern and practice" of illegal lending in minority and low-income communities that reduced home values, limited property tax revenue and drove up foreclosures. The bank says the allegations "do not reflect how we operate in the communities we serve" and says it will "vigorously defend" its lending record.

Given Wells Fargo's pattern of flouting the law, one should be concerned about the bank vigorously defending what is a dishonorable lending record.

In addition, although Wells Fargo's violations are subject to action by various agencies, it is doubtful that it will receive any more large fines -- however ineffective they may be -- from the Consumer Protection Financial Bureau. After all, the CPFB is now being temporarily run by Office of Management and Budget Director Michael Mulvaney. He's the Trump confidante who recently told an office of bank executives about how his time and services could be bought when he was a congressman.