The Consumer Financial Protections Bureau (CFPB), which was the agency in charge of investigating the fraud case of Wells Fargo reached a total $185 million in fines for this long-term practice by Wells Fargo bankers of setting up fake accounts. But they do not necessarily think this fine was intense enough to really punish Wells Fargo enough that they learned their lesson:
For obvious reasons, the most upset stakeholders in this ethical dilemma were the Wells Fargo bank customers. One such customer was Brian Kennedy, a Maryland retiree, who detected an unauthorized Wells Fargo account created in his name about a year ago. He then asked Wells Fargo about it and the bank closed it without much of an explanation given. He told CNNMoney "they lost me as a banking customer and I have warned friends and family." Customers must be able to trust their bank after all, isn't that why we use banks to keep our money safe.
I think the two statements: one by a former CFPB representative and by a customer of Wells Fargo shows the main issues that come with ethical issues in big corporations. The first issue being how to correctly establish what level of punishment a corporation should receive when breaking the law. And the second issue that can be seen from the customer response; no matter how high the monetary cost the company receives, the reputation and loss of trust will cost them even more overall in the long run.
Of particular interest to the Senate Banking Committee was Carrie Tolstedt, a Wells Fargo executive head of the unit that was responsible for the millions of fake accounts. She also faced millions of dollars in compensation clawed back. Past CEO Stumpf declined to say publicly whether he felt Tolstedt deserved this compensation. Broadcast sources and news channels commented that analysts and investors on Wall Street were more forgiving of Stumpf than their Main Street and DC counterparts. Many pointing to Wells Fargo's "superior" return in the market as the reason to back Stumpf.
Another important opinion that is vital of the external reactions in this ethical issue is that of Warren Buffett's Berkshire Hathaway. Berkshire Hathaway is the largest shareholder in Wells Fargo-owning the 10% ownership limit that one entity can hold. He spoke publically to CNN's Poppy Harlow about why he hasn't sold any shares since the scandal and why he still trusts in Wells Fargo:
Sources:
http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/
https://www.forbes.com/sites/maggiemcgrath/2016/09/23/the-9-most-important-things-you-need-to-know-about-the-well-fargo-fiasco/#4feee5763bdc
https://www.youtube.com/watch?v=sy3SaNFfs7g
https://obamawhitehouse.archives.gov/blog/2012/01/04/consumer-financial-protection-bureau-101-why-we-need-consumer-watchdog
Do you think that Wells Fargo should go above and beyond the $5 million required payout to customers to demonstrate their regret?
ReplyDeleteDo you think that Warren Buffet's explanation for why he sticking with Wells Fargo is authentic or because he has a 10% share in the company?
That is a very good idea! I also considered that they could create something that could help their brand and the community such as a wells fargo park or garden or maybe a scholarship for high school students. I think just giving out more money could be tricky to determine who that money would go to.
DeleteI think Warren Buffet was authentic in his interview because i don't think he really has that much of an incentive to stay if he didn't truly believe in the company.
I also do not think that fine was big enough. If they have about $1,250 bn, I do not think they will have learned their lesson from .01% of a fine. They will make they back in half a year and then some.
ReplyDeleteBuffet is just another example of the commend I left early. A more traditional investor will only be looking at the greenbacks. Ethical issues I’m sure are not top priority for him. He would like to max his profits and thats what he is going to do.
The reputation and stigma will never be taken back. Whats done is done and they must move forward.
Although a good point about Buffet it's important to note that this scandal didn't make the company( and in turn the investors) much of a profit. So if he didn't really believe in Wells Fargo I'm sure he could take the majority of his money to another highly profitable investment.
DeleteReputation is a high price to pay for acting unethically and it is impossible to put a dollar amount on it or say how long it will take to rebuild.
I have to disagree with your comment about Buffet. It actually seems like his commentary would hurt Wells Fargo's public spotlight. He himself has been at the center of many controversial events and many people will instinctively go against whatever he says. Also, do you believe he is worried about their ethics from outside the company or just about his money?
ReplyDeleteThe company's ethics directly affects his profits as an investor. If Wells Fargo loses customers because of fraud he will not be benefited. Although it is not his direct responsibility to manage the ethics I do think he has no choice but to have a stake in how ethical the company is.
DeleteI really don't think the fine was large enough for Wells Fargo. I think they should have paid a lot more for the amount of damage they did and should be punished more. I definitely agree that losing customers and creating such an image will cost them more than any monetary amount in the long run since they have to figure out how to retain trust and bring in new customers at the same time. It will be very difficult for people to put their trust in a bank that has had a scandal going on for 5 years as well as a terrible company culture.
ReplyDeleteI often wonder how the fine that a company receives is determined. I agree that compared to Wells Fargos' yearly profits the punishment they received wasn't enough. One thing I believe played into this fee was the fact that the amount they received was the largest the CFPB issued to the date of the case.
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