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Case Code: FINC162
Case Length: 18 Pages 
Period: 2016-2018   
Pub Date: 2019
Teaching Note: Available
Organization : Wells Fargo & Co
Industry :Banking
Countries : United States
Themes: Accounting and Control/ Financial Accounting & ReportingEthics in Accounting/Ethics in Banking
Case Studies  
Business Strategy
Human Resource Management
Leadership & Entrepreneurship

Wells Fargo-The Fake Accounts Scandal

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WFC operated on the philosophy of “out local the nationals and out national the locals”. The basic premise of this philosophy was that while being a local bank, the bank should have a national level focus. In a broader sense, this meant that the bank had to meet the requirements of its customers by operating as a small or localized bank, while at the same time focusing on offering diversified products and services which had a wide appeal to different customers and providing diversified options to its customers. This provided an opportunity for WFC to offer services that were superior to those of the local banks. The employees of the bank always maintained a close..

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All the employees in the bank were given cross-selling targets in line with the Gr-eight Initiative. All the branches were given daily selling targets, and they were supposed to sell a certain number of products to the targeted customers. If the branch failed to reach the targets any day, the deficit was added to the next day’s targets. Employees were paid incentives of 15-20% to achieve the targets. All the branches were ranked on sales metrics, including cross-selling and the scorecards ranking the branches on these metrics were published regularly...
The company had an ethics program in place and also a whistle-blowers policy. The top management could be informed of any violation committed by the employees, including the managers, through a hotline by anyone who was concerned about the situation. There was a mechanism called “We want to hear from them” that employees could use to raise any concerns they had about business practices or operational process, and there were also proper safeguards to protect the interests of whistle-blowers. ..
A lawsuit filed in the year 2011 claimed that district managers were supposed to have four review meetings every day to monitor the performance of each branch and the employees. The meetings were held at 11 a.m., 1 p.m., 3 p.m., and 5 p.m. The meetings were conducted to monitor the daily sales targets on an hourly basis to keep employees more focussed as well as to put them under high pressure to achieve the targets for the day...
The first order for action to be taken against WFC came from the CFPB, following which the management agreed to pay the necessary compensation to the customers. Stumpf was called to appear before the Senate and the House of Representatives..
Later on, external counsel Shearman & Sterling was hired to conduct an independent investigation into the matter. Stumpf was asked to part with US$ 41 million paid to him in the form of unvested equity. Retail banking head Carrie Tolstedt was asked to forfeit US$ 19 million in outstanding equity awards. Stumpf also agreed to forego his salary while investigation was under way. He finally resigned on October 2, 2016...
In April 2018, WFC agreed to pay a fine of US$ 1 billion to the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, for violations related to mortgage and auto lending. It also agreed to pay US$ 480 million to settle a class action suit over cross-selling. Later, to settle civil claims pertaining to cross-selling, auto lending, and mortgage, WFC agreed to pay US$ 575 billion. Many believed the fines slapped on WFC were rather meager and demanded higher payments from the bank to compensate the customers...
Exhibit I: Value of Loans and Total Assets of Leading Banks
Exhibit II: Various Categories of Products and Services offered by WFC
Exhibit III A: Revenues and Expenses of Wells Fargo 2008-2013 Millions of US$ except per share data
Exhibit III B: Revenues and Expenses of WFC 2014-2018 Millions of US$ except per share data
Exhibit IV: Stock Prices Comparison of WFC with Peers and Industry Benchmark index-KBW Banking Index