Can Wells Fargo shrug off the cross-selling scandal?
Wells Fargo announced today that CEO John Stumpf is stepping down in the wake of a scandal over the bank’s retail division opening millions of fraudulent customer accounts.
Wells Fargo was the last bank one would expect to be smacked with a scandal so patently unethical and wrong, according to many analysts. In fact, for decades the bank was a model of stability, even during the dark days of the financial crisis.
“In a way, they won the war, but lost the peace, in terms of the recent mishap,” Mike Mayo said, a bank analyst for CLSA.
The scandal is bad, he said, but despite a short-term dip, long-term business should still be fine.
“It’s terrible, but for the size of a bank such as Wells Fargo, it’s still quite small,” he said. “So it’s not the financial impact as much as the reputational impact.”
Many current customers may find it too much of a hassle to switch out all their various accounts.
That was the feeling of bank customer David Charles, at a Wells Fargo Branch in downtown Washington D.C.
“Yeah, there’s issues there,” Charles said. “I don’t know what’s going on, but, it’s convenient to where I work, so we’ll see if I end up leaving.”
But some analysts feel there are still too many shoes left to drop, including lost contracts, more lawsuits, and tougher sanctions from regulators.
Richard Bove is bank analyst at Rafferty Capital Markets.
“You know we still haven’t heard from the Federal Reserve, the FDIC, the Financial Oversight Council. There are so many entities that regulate banks,” Bove said.
“I think we’re talking a couple years, maybe three years, before Wells Fargo is able to set itself right.”
In addition to lost business, Bove notes the company also reportedly plans to add new costs to its operations side, including 2000 new employees in its corporate risk unit.
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