Wells Fargo & Co.'s disclosure that it may have pushed thousands of car buyers into loan defaults and repossessions by charging them for unwanted insurance is raising doubts about the bank's ability to put proper controls in place.
"The steady drip of revelations is concerning as it makes quantifying and qualifying the extent of the internal control failures difficult," Isaac Boltansky, an analyst at Compass Point Research & Trading, said Friday in an email. "Which is worrisome for both Washington and Wall Street."
An internal review of the bank's auto lending found more than 500,000 clients may have unwittingly paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers already had their own policies, Wells Fargo said in a statement late Thursday. The firm said it may pay as much as $80 million to affected clients — with extra money for as many as 20,000 who lost cars, "as an expression of our regret."
The revelation threatens to undermine the bank's 10-month effort to restore its image after authorities announced last year that branch workers may have opened millions of unauthorized accounts for customers. For shareholders, Thursday's disclosure also landed without any warning, even after that earlier debacle sent the stock tumbling and prompted congressional hearings and a leadership shakeup.
'Clearly Insufficient'
"What has been shown is that the bank was run for superior revenue growth, and the controls around managing that were clearly insufficient," Atlantic Equities analyst Christopher Wheeler said in an email. "Management changes may have to be more extensive to try and shake off the new and lower-quality reputation."
Wells Fargo shares fell 2.5 percent to $53.37 at 12:09 p.m. in New York, the worst performance in the KBW Bank Index. The stock has dropped 3.1 percent this year, compared with the 3.9 percent advance of the 24-company index.
The San Francisco-based lender said it began reviewing the insurance issue about 12 months ago after hearing from clients.
"Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole," Franklin Codel, the bank's head of consumer lending, said in the statement. The bank's leaders "are extremely sorry for any harm this caused our customers, who expect and deserve better from us," he said.
Kevin J. Barker, a Piper Jaffray & Co. analyst, questioned why Wells Fargo waited until now to release details. He said lawsuits could cost the bank "multiples more" than the $80 million disclosed Thursday and further harm its relationship with some customers.
'Collateral Damage'
"Why didn't the company address these issues publicly while they were already dealing with the account scandal?" Barker wrote Friday in a note to investors. "What other collateral damage may have been caused by the repossession of these cars on peoples' lives?"
The bank notified its main regulator, the Office of the Comptroller of the Currency, "very promptly" after receiving a number of customer complaints in July of 2016, Codel said Friday in a phone interview, without giving a specific date. It also notified the Federal Reserve and the Consumer Financial Protection Bureau around the same time, he said.
"They were aware early on, and we've had regular conversations with them as we both made business decisions and started working on the remediation," Codel said.
