Wells Fargo's Sales-Scandal Tally Grows to Around 3.5 Million Accounts

By Emily Glazer Features Dow Jones Newswires

Wells Fargo & Co. said around 3.5 million customer accounts were "potentially unauthorized" in its sales-practices scandal upon the completion of its review, more than 1 million more than initially announced.

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The bank, which continues to deal with problems in different parts of the firm, said Thursday that the number grew from the 2.1 million accounts initially announced when the scandal unfolded about a year ago. The bank is providing an additional $3.7 million in customer refunds based on the expanded analysis.

"We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank," Wells Fargo Chief Executive Timothy Sloan said in a statement. "Today's announcement is a reminder of the disappointment we caused to customers and stakeholders," he added on a call with news media Thursday morning.

In September 2016, Wells Fargo paid a $185 million fine for opening accounts with fictitious or unauthorized customer information. Soon after, it underwent congressional hearings, its then-CEO abruptly retired and it continues to face federal and state investigations. The bank has said it is cooperating with those investigations.

Mr. Sloan, on Thursday's call, said there aren't any updates on those investigations and declined to comment on conversations with regulators. He added that there aren't additional expected personnel changes.

After one of the congressional hearings, the bank said it would expand its review of questionable accounts to 2009 and 2010 since a number of customers had come forward.

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The bank has said in securities filings over the past several months that the number of potentially impacted accounts would likely increase.

Wells Fargo said it refined its analysis and methodologies used by a third-party in determining potentially unauthorized accounts. Because of the changed analysis, the number of potentially unauthorized accounts in the original 2011 to 2015 time period grew to 2.55 million from 2.1 million. The bank said the additional periods dating back to January 2009 added 981,000 accounts that were potentially unauthorized. Its expanded analysis reviewed more than 165 million retail banking accounts over the nearly eight-year period.

Wells Fargo added that out of the 3.5 million total potentially bogus accounts, around 190,000 incurred fees and charges, up from 130,000 previously identified. The bank will provide a $2.8 million in refunds and credits to customers in addition to the $3.3 million previously refunded from its original account review.

Wells Fargo also said that the expanded analysis included a review of online bill-pay services, which was required under September 2016 consent orders it received from regulators upon the original settlement.

The analysis found around 528,000 potentially unauthorized online bill-pay enrollments, and it will refund an additional $910,000 to customers who incurred fees or charges. The analysis flagged accounts as potentially unauthorized if they had only one minimal payment and no further use of the service, even if customers made a first payment and then decided not to use the service.

"Therefore, the analysis did not definitively identify whether an enrollment was authorized by a customer or not, and properly authorized enrollments are likely part of this total," according to the release.

The bank has provided $3.7 million in refunds based on customer complaints and mediation claims between Sept. 8, 2016, and July 31, 2017.

That is in addition to a $142 million class-action settlement the bank has agreed to for claims dating back to 2002.

Write to Emily Glazer at emily.glazer@wsj.com

Wells Fargo & Co. said 3.5 million "potentially unauthorized" customer accounts were opened as part of its sales-practices scandal, a 67% increase over previous estimates that rekindled questions about the bank's management and tactics.

The revelation Thursday, made at the conclusion of a review of the sales-practices issues, comes against a backdrop of fresh problems within Wells Fargo's consumer-lending operations and significant underperformance in the stock market versus big-bank peers.

Wells Fargo's problems erupted last September when it admitted that employees opened accounts without customers' knowledge to meet lofty sales goals. The revelation led to congressional hearings, the abrupt retirement of its then-CEO and a decision by the bank's board to claw back tens of millions of dollars in compensation from some top executives.

While increasing the number of "potentially unauthorized" accounts from the 2.1 million figure that it gave when the scandal broke, Wells Fargo also said Thursday that it is providing $3.7 million in additional customer refunds.

"We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank," Wells Fargo Chief Executive Timothy Sloan said in a statement. "Today's announcement is a reminder of the disappointment we caused to customers and stakeholders," he added on a media call.

The latest disclosure is likely to keep the bank in the regulatory spotlight and boost the possibility of future congressional hearings, analyst Jaret Seiberg of Cowen Group Inc. wrote in a client note.

Although Wells Fargo agreed to a $185 million settlement with regulators last September, the sales-practices issues have sparked a number of federal and state investigations, including from the Justice Department.

Mr. Sloan, who took over from John Stumpf late last year, said on the media call that there aren't any updates on those investigations. The bank has said it is cooperating with the inquiries; Mr. Sloan declined to comment on conversations with regulators in light of its latest update. He also said the new account figures aren't likely to upend an agreement to pay $142 million to customers to settle a class-action suit.

Soon after the bank's announcement, Sen. Elizabeth Warren (D, Mass.), a frequent Wells Fargo critic, wrote on Twitter that the latest information is "unbelievable" and that the bank's "massive fraud is even worse than we thought."

She reiterated her earlier call for the Federal Reserve to remove all Wells Fargo board members who served during the problem periods and the need for further congressional hearings.

The bank's board has said the practices leading to the unauthorized accounts went as far back as 2002.

Democrats on the Senate Banking Committee had already called for such hearings to examine issues that have recently emerged at the bank in regard to insurance products. So far, Republicans, who control both houses of Congress and committee leadership posts, haven't said if they would agree to the request.

Mr. Sloan said Thursday that the bank is continuing to reach out to all stakeholders and "respond to questions and concerns that they have."

The bank called the completion of the review "an important milestone," a view echoed by others. The fact that Wells Fargo is putting the scandal behind it "is a positive in our view," wrote Keefe, Bruyette & Woods analyst Brian Kleinhanzl, adding that "we now expect the trickle of new information to slow considerably."

Still, many investors remain wary. Wells Fargo's stock fell Thursday, lagging behind peers.

That continued a woeful period since the scandal unfolded. Over the past year, the bank's shares are barely changed. Meanwhile, its three big-bank rivals -- J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc. -- have notched an average gain for the period of around 40%. The KBW Nasdaq Bank Index is up about 28%.

Now isn't the time to buy Wells Fargo stock due to the poor sentiment surrounding the bank and drags on its business, said Christopher Walsh, an analyst at Buckingham Research Group.

Separately Thursday, regulatory filings from Vanguard Group showed it cast ballots earlier this year against Wells Fargo nonexecutive chairman Stephen W. Sanger and two other directors. In mid-August, Wells Fargo said that Elizabeth Duke, its current vice chairman, would succeed Mr. Sanger as chairman on Jan. 1.

Aside from the management and political upheaval, the sales scandal has also affected the bank's underlying consumer business.

The growth rate for new checking and credit-card accounts, for example, has fallen since last year's scandal to a year-over-year rate of about 1% to 2% in 2017's second quarter, Bernstein banking analyst John McDonald said in a recent report. That is compared with growth of 5% to 6% in 2016.

Mr. McDonald said that will hit revenues, weighing on card fees, net-interest income and deposit service charges.

In light of this, Wells Fargo has been forced to cut expenses, even as it tries to revive growth. Yet other issues have surfaced as the bank dug into the sales-practices scandal, adding to concerns.

Wells Fargo said in July it would reimburse customers for around $80 million due to problems in its auto-lending unit. These led to as many as 570,000 borrowers being improperly charged for insurance policies.

The bank also recently disclosed problems for so-called guaranteed asset protection products sold through car dealerships. Those could result in refunds to customers in certain states.

The auto-related matters already have brought fresh regulatory scrutiny and related class-action suits. As well, problems have come to light in recent months over policies and processes with mortgage customers where Wells Fargo required them to pay fees for extensions of interest-rate lock periods. Wells Fargo also said it is looking into practices with certain consumer "add-on" products like identity theft and debt protection, among other issues.

Wells Fargo said the increase in its estimate of potentially unauthorized accounts was partially due to it refining the analysis and methodologies used by an outside firm examining the problems. As a result, the number of potentially unauthorized accounts in the original 2011 to 2015 period grew to 2.55 million from 2.1 million.

After last fall's congressional hearings, the bank also said it would extend the time period under review to January 2009. That added 981,000 accounts that were potentially unauthorized.

The analysis also found around 528,000 potentially unauthorized online bill-pay enrollments, and the bank said it would refund an additional $910,000 to customers who incurred fees or charges.

Wells Fargo added that out of the 3.5 million total potentially bogus accounts, around 190,000 incurred fees and charges, up from 130,000 previously identified.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

August 31, 2017 15:05 ET (19:05 GMT)