Wells Fargo rejects Senator Warren’s request to break up

Wells Fargo rejected an effort by Sen. Elizabeth Warren to force the megabank out of business, saying it has made significant progress in overhauling its operations and addressing the scandals.

In a letter to Federal Reserve Chairman Jerome Powell made public Tuesday, Warren wrote that the bank is “just ungovernable.” He asked the regulator to separate Wells Fargo’s traditional banking operations from its Wall Street activities.

The $ 1.9 trillion asset bank has proven to be an “irredeemable repeat offender” despite two CEO changes and numerous regulatory sanctions, including an unprecedented asset cap, Warren wrote. The Massachusetts Democrat said she supported the asset cap when the Fed imposed it in 2018, but argued that the bank’s ongoing troubles show the need for more aggressive action.

Wells Fargo CEO Charlie Scharf, who joined the bank in 2019, is coming under fire from Sen. Elizabeth Warren, D-Massachusetts, for what she called the bank’s “numerous and chronic deficiencies in risk management” .

Bloomberg

“Continuing to allow this giant bank with a broken culture to conduct business in its current form presents substantial risks to consumers and the financial system,” Warren wrote.

The letter arrived just five days after the Office of the Comptroller of the Currency fined Wells $ 250 million, citing mortgage servicing borrower remediation issues and violations of a 2018 consent order that required the bank to improve its internal controls.

The bank is still subject to several other regulatory consent orders, though it was released last week from a 2016 order from the Consumer Financial Protection Bureau for its retail sales practices. Chief Executive Officer Charlie Scharf, who joined the bank in 2019, said last week that the news from the CFPB was a sign that the bank is making progress even as positive milestones “are accompanied by setbacks.”

In a press release after Warren’s letter was made public, the San Francisco bank highlighted several changes it has made since 2019. Those steps include a reorganization of its lines of business, a reduction in the number of clients it needs. remediation and implementation of a new incentive. payment plan in branches.

The bank also said it has launched a business program to assess operational risks and controls, and ultimately to design additional controls where appropriate.

“We are a different bank today than we were five years ago because we have made significant progress,” the press release said.

Wells Fargo also noted that 10 of the 17 members of its operating committee are new to the bank and said leadership has changed in key positions, particularly in its home loan division.

“Serving clients to the highest standards requires a solid foundation of control and risk,” the bank said. “That’s why meeting our own risk management and control expectations, as well as those of our regulators, remains Wells Fargo’s top priority.”

Warren asked Powell to revoke the bank’s ability to participate in financial market activities and force it to spin off any division that does not focus on traditional banking services. Regulators must view banks as “well managed” so they can engage in non-banking activities such as underwriting and investment banking, Warren wrote, and it is “inconceivable” that Wells meets that mark.

Separating the bank’s financial market divisions would ensure Wells Fargo leaders can “focus their full attention on fixing the bank’s many chronic risk management deficiencies,” Warren wrote.

A Fed spokesman said the regulator received the letter and plans to respond.

Warren also wrote to Wells Fargo’s new chairman Stephen Black, stating that the most recent fine from the OCC appears to show that Scharf has made “little progress toward improving bank governance and changing the culture,” but has been “greatly rewarded for his failures.”

Scharf received a total compensation of $ 20.3 million in 2020, down from $ 23 million the previous year. Wells Fargo has He received rejection by some shareholders of their executive compensation packages.

In a press release Tuesday, Fitch Ratings said it views the OCC’s recent action against Wells as “broadly negative” and as “potentially supportive of negative rating action in the short to medium term.”

The latest enforcement measure “will make it less likely” that the Fed will release Wells from its asset limit in the near term, the ratings agency wrote. Fitch also stated that failure to make significant progress in addressing its regulatory issues could impede Wells Fargo’s ability to execute growth initiatives.

“Generally speaking, we view the inability to have consent orders or asset cap lifted as a possible indication of an institution that may still be too operationally challenged by the breadth of outstanding issues,” Fitch wrote.

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