Wells Fargo pushed back against an effort by Sen. Elizabeth Warren to force the megabank’s breakup, saying that it has made significant progress in overhauling its operations and addressing scandals.
In a letter to Federal Reserve Chair Jerome Powell that was made public Tuesday, Warren wrote that the bank is “simply ungovernable.” She asked the regulator to break off Wells Fargo’s traditional banking operations from its Wall Street activities.
The $1.9 trillion-asset bank has proved to be an “irredeemable repeat offender” despite two CEO changes and numerous regulatory penalties, including an unprecedented asset cap, Warren wrote. The Massachusetts Democrat noted that she supported the asset cap when the Fed imposed it in 2018, but argued that the bank’s continued problems show the need for more aggressive action.
“Continuing to allow this giant bank with a broken culture to conduct business in its current form poses substantial risks to consumers and the financial system,” Warren wrote.
The letter came just five days after the Office of the Comptroller of the Currency
The bank is still subject to several other regulatory consent orders, though it did get freed last week from a 2016 order from the Consumer Financial Protection Bureau over its retail sales practices. CEO Charlie Scharf, who joined the bank in 2019, said last week the CFPB news was a sign that the bank is making progress even if positive milestones “come alongside setbacks.”
In a press release after Warren’s letter became public, the San Francisco bank highlighted several changes it has made since 2019. Those steps include a reorganization of its business lines, a reduction in the number of customers that need remediation and the implementation of a new incentive pay plan at branches.
The bank also said that it has launched an enterprisewide program to assess operational risks and controls, and ultimately to design additional controls when doing so is appropriate.
“We are a different bank today than we were five years ago because we’ve made significant progress,” the press release stated.
Wells Fargo also noted that 10 of the 17 members of its operating committee are new to the bank, and said that it has shaken up leadership in key positions, particularly in its home lending division.
“Serving customers with the highest standards requires a strong risk and control foundation,” the bank said. “That’s why meeting our own expectations for risk management and controls — as well as our regulators’ — remains Wells Fargo’s top priority.”
Warren asked Powell to revoke the bank’s ability to engage in financial market activities and force it to spin off any divisions that do not focus on traditional banking services. Regulators must deem banks to be “well managed” for them to engage in non-banking activities like securities underwriting and investment banking, Warren wrote, and it is “inconceivable” that Wells meets that mark.
Splitting off the bank’s financial market divisions would ensure that Wells Fargo's leaders can “focus all of their attention on fixing the bank’s numerous, chronic risk-management deficiencies,” Warren wrote.
A Fed spokesperson said the regulator received the letter and plans to respond.
Warren also wrote to Wells Fargo’s new chairman, Stephen Black, stating that the OCC’s most recent fine appears to show that Scharf has made “little progress toward improving the bank’s governance and changing the culture” yet has been “richly rewarded for his failures.”
Scharf received total compensation of $20.3 million in 2020, down from $23 million the prior year. Wells Fargo has
In a press release Tuesday, Fitch Ratings said that it views the OCC’s recent action against Wells as “broadly negative” and as “potentially supportive of negative rating action over the near-to-medium term.”
The latest enforcement action “will make it less likely” that the Fed frees Wells from its asset cap anytime soon, the ratings agency wrote. Fitch also stated that a failure to achieve meaningful progress in addressing its regulatory troubles could impede Wells Fargo’s ability to execute on growth initiatives.
“Broadly, we see the inability to have the consent orders or asset cap lifted as potentially indicative of an institution which may be still too operationally challenged by the breadth of outstanding issues,” Fitch wrote.
