The embattled financial titan, Wells Fargo & Co, has reached a monumental settlement agreement, opting to pay $1 billion in resolution of a lawsuit. The company faced accusations of intentionally deceiving its shareholders concerning its progress toward recovery from a string of high-profile scandals centered on its customer treatment.
U.S. District Judge Gregory Woods granted the preliminary approval for the cash settlement. The figure was determined with the assistance of a mediator. A final approval hearing has been scheduled for September 8.
Wells Fargo has been navigating stormy waters since 2018. Under a trio of consent orders from the Federal Reserve and other financial regulators, the banking behemoth has been charged with improving governance and oversight within its operations. Consequently, Wells Fargo’s growth potential has been stunted by an asset cap imposed by the Federal Reserve, hampering its ability to keep pace with its rivals, such as JPMorgan Chase & Co, Bank of America Corp, and Citigroup Inc.
Shareholders posited that Wells Fargo inflated claims of compliance with these consent orders. As the bank’s failings became public knowledge, they assert that over two years ending in March 2020, its market value depreciated by over $54 billion.
Facing the music: Wells Fargo confronts past missteps
Despite the San Francisco-based bank denying any wrongdoing, the settlement decision was reached to sidestep the cost and complexities of prolonged litigation. While contesting the allegations, Wells Fargo expressed relief in resolving the matter. Meanwhile, attorneys representing the plaintiffs could seek nearly one-fifth of the settlement fund in legal fees.
Since 2016, Wells Fargo has either paid or set aside multiple billions of dollars to address several regulatory investigations and litigations related to its business practices. Alleged malpractices included opening roughly 3.5 million customer accounts without consent and wrongly charging hundreds of thousands of borrowers for unneeded auto insurance.
Wells Fargo’s CEO Charlie Scharf admitted that the bank’s recovery efforts have been more arduous than anticipated. “When I arrived, we did not have the culture, effective processes, or appropriate management oversight in place to remediate weaknesses on a timely basis,” he conceded. However, he added that the bank’s current approach is different and more effective.
Investors who bought Wells Fargo stock from February 2, 2018, through March 12, 2020, will benefit from the settlement payout. This latest settlement comes on the heels of several previous ones, including a $320 million payout over the bank’s fake accounts scandal, a $480 million shareholder settlement in 2018, and a $3 billion payout in 2020 to settle US investigations into consumer abuses spanning over a decade.
