On September 8th, 2016, it was revealed that Wells Fargo had created over two million fraudulent accounts on behalf of their customers. These fraudulent bank accounts and credit cards were produced by employees under pressure from incredibly demanding sales goals. As a result of these tough to achieve goals, along with the severe punishments associated with missing targets, many of these employees resorted to supplement their sales figures by established fraudulent accounts without the client’s knowledge. In the aftermath of this revelation, Wells Fargo has experienced a minor shakeup in its leadership, fired over 5,000 retail banking employees and had a $185 Million fine imposed (1).
The fallout of the scandal being publicized has yet to be fully realized by Wells Fargo and the industry as a whole. However, the immediate aftermath has left Wells Fargo banned from conducting business with numerous municipalities for a year, a significant slowdown of checking account and credit card openings in September, compared to a year ago and the resignation of the CEO, John Stumpf (2). These hits are coupled with the drastic drop in consumer trust and the likely lengthy intense investigation the bank is currently facing. While the new CEO, Timothy Sloan is working tirelessly to remedy the corporate strategy, the impending investigation and potential of further revelations will further impede the bank’s ability to reclaim their former market dominance.
In an effort to rectify the situation, Timothy Sloan has imposed a strict shift in corporate strategy from aggressively pushing sales to increasing customer service and satisfaction. They are making every attempt to fix the damage caused to the affected customers and regain their trust. However, as is being speculated, Wells Fargo did not in fact benefit from the actions involved in this scandal and disgruntled employees may have been trying to exact revenge on an employer they felt wronged them (3). Despite this possibility, the public does not appear to be considering it and management’s top priority has become the consumer sentiment of the bank. Their clear vision is that the present losses will be accepted if they may stem the growing tide against the bank. The overall goal of sales-driven to customer driven is reframed as a shift from short-term focus to a much longer-term focus.
While the scandal has opened up enormous opportunities for the remaining Bulge Bracket banks, an unlikely player is emerging the victor. With the overall sentiment of banks and wall street continue to move negatively, non-profit institutions such as credit unions, are experiencing a windfall of growth and have grabbed the opportunity presented to them (4). While these smaller institutions only cover a portion of the services offered by the larger banks, their impact and future potential is becoming larger. It will likely lead to additional shifts down the line by the larger banks towards reduced fees and a more significant focus on customer experience and relationships.
With credit unions posing a growing industry-shift down the line, the controversy engulfing Wells Fargo has created an opportunity for their rivals such as J.P. Morgan Chase & Co. and Citibank. Additionally, these rivals are learning from the scandal as J.P. Morgan has found an opening to further highlights their commitment to their customers by proactively probing their sales practices (5). As an added hit to Wells Fargo, the major banks are emphasizing the contrast behind corporate strategy and customer focus. This strategy will likely have more pronounced and clear results in the coming years, but as Citibank and J.P. Morgan just reported significantly higher than projected earnings largely due from other events, including Brexit talks, they are in an even stronger position to gain the most from Wells Fargo’s scandal (6).
(1) Blake, Paul. "Timeline of the Wells Fargo Accounts Scandal." ABC News. ABC News Network, 3 Nov. 2016. Web. 06 Nov. 2016.
(2) Corkery, Michael. "Wells Fargo Says Customers Shied Away After Scandal." The New York Times. The New York Times, 15 Oct. 2016. Web. 06 Nov. 2016.
(3) Henry, David, and Dan Freed. "Sales Scandal Costs Wells Fargo; JPMorgan and Citi Please Wall Street." Reuters. Thomson Reuters, 14 Oct. 2016. Web. 06 Nov. 2016.
(4) Son, Hugh, and Jordyn Holman. "JPMorgan Conducts 'Deep Dive' Review After Wells Fargo Lapse." Bloomberg.com. Bloomberg, 14 Oct. 2016. Web. 06 Nov. 2016.
(5) Walters, Natalie. "Wells Fargo (WFC) Did Not Benefit From Accounts Scandal, Says WSJ's Freeman." TheStreet. N.p., 12 Oct. 2016. Web. 06 Nov. 2016.
(6) Woolley, Suzanne. "Here's Who Profits From the Wells Fargo Scandal." Bloomberg.com. Bloomberg, 14 Sept. 2016. Web. 06 Nov. 2016.
Image: © Alexeynovikov | Dreamstime.com - Street Signage Board With Wells Fargo Logo In The Evening. Blurred Business District Skyscrapers Background. Editorial Photo