Have Other Banks Followed Wells Fargo's Lead?
The U.S. Bancorp building in Portland, Ore. Image source: Wikimedia Commons.
You would think that other banks would be licking their chops after it was revealed that thousands of employees at Wells Fargo (NYSE: WFC) had opened as many as 2 million fraudulent accounts for customers between 2011 and 2015. But while this seems like an easy way to poach customers from the nation's third biggest bank by assets,that's not how other bankers see it.
Why are banks choosing not to exploit this situation? One reason is that they, too, might have been guilty of the same conduct.
Living in glass houses
At an investor conference soon after the Wells Fargo incident came to light, the chairman and CEO of US Bancorp (NYSE: USB), Richard Davis, told industry analysts that his bank would fire employees who trash-talked Wells Fargo to attract new clients.
"So help me God, if I find a branch in one market with an orange flier that says if you bank at Wells come to US Bank, they're going to be let go," Davis said at an investor's event earlier this month, as reported by the StarTribune. "That's not the way we do business. It will come to us if we've earned it."
Davis then went on to note:
Davis has a point. As one of the nation's most profitable banks, fueled by a highly efficient operation and prudent risk management, US Bancorp doesn't need to take advantage of other banks' misfortunes to be successful.
At the same time, however, one can't help being concerned that US Bancorp, as well as most other large banks, may be reluctant to castigate Wells Fargo because they may soon face similar allegations.
An industrywide scandal?
Indeed, one of the bank industry's primary regulators, the Office of the Comptroller of the Currency, said as much during a hearing into the Wells Fargo scandal last week. The head of the agency, Thomas Curry, told Senators that the OCC is investigating whether employees at other banks created fake accounts in response to high-pressure sales tactics pushed down by management.
And CNN Money reports that bankers at major regional banks do the same thing. A branch manager at a "big regional bank" told CNN that he gets "badgered every single day by management" about sales goals. Another said he witnessed tactics at the regional bank he works at that mirrored those at Wells Fargo.
All of this confirms what the National Employment Law Project found in a study released in June. It cited interviews with employees at SunTrust Banks, Bank of America, U.S. Bancorp, and others, all of which seem to suggest that forcing unwitting customers to sign up for additional accounts, whether they knew they were doing so or not, evolved into an industrywide practice.
The point here is that investors of all major banks should be prepared for similar conduct to come to light and thereby weigh on bank stock prices, as has been the case at Wells Fargo. Shares of the California-based bank are down roughly 10% since the malfeasance was revealed.
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John Maxfield owns shares of Bank of America, US Bancorp, and Wells Fargo. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool has the following options: short October 2016 $50 calls on Wells Fargo. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.