https://www.fitchratings.com/research/banks/additional-regulatory-action-on-wells-fargo-highlights-operational-challenges-still-present-14-09-2021
The fines will be paid thru employee layoffs most likely.
Fitch Ratings-New York/Chicago-14 September 2021: The announcement by the Office of the Comptroller of the Currency (OCC) of another consent order (the order or enforcement action) on Wells Fargo & Co. (WFC; A+/Negative Outlook) last week points to continued operational challenges facing the firm, says Fitch Ratings. Importantly, Fitch expects that the new enforcement action will make it less likely that the firm will be released, in the near-to-medium term, from the order placed onto it by the Federal Reserve in 2018 which restricts it from growing its asset size beyond a specific threshold which could prolong its efforts to potentially improve earnings performance on an absolute and relative basis.
On Sept. 9, 2021, the OCC issued a consent order against Wells Fargo Bank, NA, WFC's primary operating entity, pointing to deficiencies in its home lending loss mitigation practices. These risk management issues were broadly brought to light in a 2018 order from the OCC. However, the new order was particularly specific around the bank's insufficient oversight and insufficient governance that caused inaccurate loan modification decisions for bank customers and weakened the bank's ability to identify and remediate those harmed customers in a timely manner. Moreover, the OCC noted last week that while the bank has taken steps to comply with the 2018 consent order, its progress for meeting regulatory expectations has been slow and therefore remained in violation of the order. In addition to actions needed to be taken to remedy regulatory concerns, the OCC imposed a $250 million civil monetary policy on the bank, or just under 3.6% of 2Q21 pre-provision net revenue.
Conversely, and also last week, the bank announced that the enforcement action issued by the Consumer Financial Protection Bureau (CFPB) in 2016 relating to its retail sales practices expired. This is indicative of the bank remedying those specific issues such that the CFPB did not find it necessary to extend the order which the regulatory agency had the ability to do.
In June 2021, Fitch affirmed WFC's ratings and maintained the Negative Outlook on its Long-Term Issuer Default Rating, driven by our view that the remediation of regulatory orders has been slower than anticipated. 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. Moreover, we communicated that a failure to report meaningful progress in remediating regulatory issues in the near-term which could delay execution on earnings aspirations and impede franchise strengthening initiatives, could support negative ratings action, particularly since WFC remains highly-rated. Finally, we also indicated that the bank's rating would be sensitive to disclosures of additional, meaningful regulatory orders outside of what had already been made public.
Fitch will continue to assess the firm's ability to manage regulatory risk and its ability to improve earnings performance. However, we view the disclosure of the additional enforcement action as broadly negative from a ratings perspective and potentially supportive of negative rating action over the near-to-medium term.