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Case Study 3

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23 views

Case Study 3

Uploaded by

zama khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Case study - The 2016

Wells Fargo Crisis


Introduction

The Wells Fargo scandal was due to millions of fake savings and
checking accounts were created on behalf of their clients without
their consent for more sales goals at Wells Fargo. After the company
was fined a total of US$185m by various regulatory bodies including
(CFPB) for engaging in illegal activities, news of the fraud spread
widely in late 2016. By 2018 about 2.7b civil and criminal lawsuits
were filled against the organisation. Clients of the bank started to
become aware of the fraud when they received unexpected fee etc.
The widespread fraud the consequent media attention and the
discovery of additional fraudulent practices by the company harmed
bank’s reputation. The issue was first traced to specific Wells Fargo
branch employee and managers as well as incentives connected
with recommending several “solutions or financial product. Later,
the blame was placed on higher-level management’s top-down
pressure to open as many accounts as possible through cross
selling. The bank had a stable reputation on wall street and in the
financial industry because it had taken comparatively few risks in
the year preceding the 2007-2008 financial crisis. The widespread
fraud, the consequent media attention and the discovery of
additional fraudulent practices by the company damaged the bank’s
once stable reputation. A number of towns between Wells Fargo and
different parties, an investigation into the company’s bank-led
model, the dismissal of CEO John Stumpf, and promises from the
new leadership to reform the bank are all final of this revelation

Background

The fraud is based on a practice known as ‘cross selling,’ which is


trying to sell customers more than one product. A consumer with a
checking account for example might be persuaded to open an
online banking account, apply for credit card, or get a mortgage.
The average number of products a consumer heals was one way for
retail bank to gauge their success and Wells Fargo was long regard
as the most prosperous cross-selling. The tactic is said to have been
created by Richard Kovacevich, The former CEO of Norwest
Corporation and subsequently of Wells Fargo. In a 1998 Interview,
Kovacevich described the company’s credit cards, checking and
saving account and mortgages as more conventional consumer
goods. He also disclosed that he
viewed branch employees as
“salespeople” and customers as
opposed to “clients”. Under
Kovacevich, Norwest launched the
‘going for Gr eight’ campaign which
tasked branch staff with selling at
least eight items
Early Coverage: The wall street
journal first reported on Wells Fargo’s
cross-selling tactics and saws culture
in 2011, along with how they affected
consumers. A2013 Los Angeles times Investigation found that bank
managers and individual bankers were under a lot pressure to meet
targets. COO timothy Sloan was quoted in the los Angels Times
article saying he didn’t know of any “...overbearing sales culture’.
Later, Sloan would take over as CEO from John Stumpf. Supervisor
pressure frequently led to employees opening accounts without the

customer’s permission it was reported in the American Bankruptcy


Institute Journal that Wells Fargo employees “opened as many as
accounts and more than 500,000 credit cards without customers
authorization “. For establishing new cards, checking accounts and
enrolling clients in service like online banking, the staff members
were rewarded with bonuses. “Wells Fargo’s fleecing of its customer.
Shows, at best, a reckless lack of oversight and at worst, a culture
which encourages wanton greed” said California Treasurer John
Chiang. According to Verschoor, the Wells Fargo investigations
conclusion indicate that staff members also initiated online banking
accounts and ordered debit cards without the customers permission
the banks marketing incentive program is to blame for setting
exceptionally high sales target for staff members to cross’s selling
more banking product to current client, regardless of whether these
clients required or desired them. The interagency guidance on
sound incentive compensation policies was released in 2010 by the
New York department of financial services (NYDFS). These policies
oversee incentive-based pay plans and mandate that banks
maintain an appropriate balance between rewards and risks, work
well with controls and risk management and have strong corporate
governance to support them
Fraud: In order to keep customers from learning about the theft,
employees were urged to order credit cards for pre-approved clients
without getting their permission and to fill out request using their
personal contact information. Additionally, workers opened false
checking and saving accounts, sometimes including the transfer of
funds from real accounts. “pinning” is the term for the clients that
helped make these extra items possible. Ankers was able to access
customers accounts and register them for service like interest
banking by setting the clients PIN to 0000. Employees signed
homeless people up for fee-accruing financial products as one way
to meet quotas. The book took minimal attempts to change the
company’s sales culture following the los Angeles times
investigation. the bank was finedb%185 million in early September
2016 for opening about 1.534.28 unlawful deposit accounts and
565,433 credit card account between 2011 and 2016, despite
claims of changes. Subsequent estimates, which came out in may
2017 put the overall numbers of bogus accounts closer to
3,500,000. It was discovered in December 2016 that bank staff
members had also given out unsolicited insurance plans. These
included Assurant’s renters’ insurance policies and prudent
financials’ insurance workers who came forwards as whistleblowers.
Afters prudential dismissed these workers and said it might sue
Wells Fargo for dames

Impact
On Wells Fargo: About 3000 employees were fired and the bank
faced decreased profitability in the first quarter after the news. John
Stumpf the CEO was subject to hear before a senate banking
committee on September 21,2016. Before the hearing Stumpf
agreed to Forgo $41m, Stumpf resigned roughly a month after the
fines by CFPB were announced, to be replaced by COO Timothy
Sloan, they had internal pressure for Stumpf’s resignation also
payments to law firm and other expenses increased
On consumers: customers credit score were also hurt by fake
accounts. Also incurring fee. Bank was unable to prevent customers
from pursing legal action

Take Aways
Business should prioritize clients need and interest ahead of their
own financial goals. Retaining credibility and trust requires strict
adherence to legal requirements as well as ethical standards.
Accountability and trust are created by open and honest
communication will all stakeholders including customers, investors
and staff. Long term success depends on honesty, responsibility and
moral conduct at all organization levels. Scandals can be avoided
and risk can be reduced by putting strong assessment and
monitoring systems in place to quickly identify and address
unethical misconduct
Bible Verse Proverbs 12:22 states- “ The lord detests lying lips but
he delights in people who are trustworthy” Integrity and honesty are
emphasized in all spheres of including business regarding wells
Fargo ethical issue business should put its efforts into making
amends by owing up to any misconduct accepting accountability
and outing policies in place to make sure it doesn’t happen again.
This verse might serve us as a guide to value honesty and reliability
in life

Reference

https://en.wikipedia.org/wiki/Wells_Fargo_cross-selling_scandal

https://finance.yahoo.com/news/wells-fargo-scandals-the-complete-
timeline-141213414.html

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