Wells Fargo -Breach of Trust

The actual money that Wells Fargo made from this cross-selling activity really wasn’t a lot. Yet a lot of people really got upset about it. Some financial analysts even said that this was the worst financial crime ever. So what made this case particularly special?  

As we have discussed previously, trust is the foundation of banks and the financial system. You choose a bank because you know that you can trust them. And here in this particular instance, Wells Fargo completely betrayed that trust for selfish and greedy reasons.  

First of all, there was no benefit to the customer here. They did not do any research showing that customers are better off with 8 accounts. They simply said that 8 rhymes with great, and therefore we’re going to do this.  

There was also not much benefit to the bank itself from an economic perspective. When a bank does transactions, it makes money out of them, the same way as you make money if you sell hamburgers. And Wells Fargo only made between 1.5 and 2.5 million dollars from these unethical, even illegal transactions.  

Then who did benefit from this activity? The senior staff, the CEO, and various high-level people within the company, specifically those who had stock options. They made money because their share price doubled within a short period of time, so they were able to sell off their shares and personally benefit significantly. They made hundreds of millions of dollars collectively and they walked away with almost all of that.  

And here’s the more terrible thing. The senior management individually made hundreds of millions of dollars, and they left the bank in disgrace. But the bank ended up paying hundreds of millions of dollars in various fines and legal fees – potentially over a billion dollars more recently. And that doesn’t even include the reputation loss. Many municipal and state governments removed their business from Wells Fargo, which made it hard if not impossible for them to continue growing. The federal government of the US stopped their growth: saying, you gotta clean this stuff up because you’re not running this in a proper way.  

So, it seems like there is a tragic irony here. The people who initiated or at least allowed unethical behaviour to occur were able to benefit from them and walk away. But the bank and the fines they have to pay, are really being borne by the current shareholders, such as the employees and customers.  

And that probably includes you.