Wells Fargo & Co (NYSE:WFC) has been hit sharply with a $1 billion fine by U.S. regulators after the bank has been criticized for being reckless and not looking after its customers’ best interests. Wells Fargo was charging customers fees on their mortgages for missing deadlines, even when it was the bank’s fault rather than the customer’s. In addition, Wells Fargo also charged its customers for car insurance when it wasn’t necessary and didn’t offer refunds even when customers provided proof of coverage.
In light of these instances a $1 billion fine might seem extremely punitive, but Wells Fargo is a repeat offender. Last year, the company was in the news for its creating fake accounts in order to boost its revenue, with as many as 3.5 million fake accounts being setup in an extreme example of aggressive sales practices.
For all the negative press, Wells Fargo is only down 2% in the last year, as investors haven’t punished the stock the way regulators have. Even Friday, with the news coming out about the fine, the stock was actually up 2%. These scandals are not new, but a big fine by what’s up until now been a bank-friendly government south of the border suggests there may be tougher times ahead for Wells Fargo.
However, as bad as $1 billion sounds, for Wells Fargo it represents less than 5% of the income that the bank earned in the previous twelve months. Wells Fargo will certainly be able to absorb the hit, but the big question is whether or not it will ever change its ways.
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