Wells Fargo to pay $1B for mortgage, auto lending abuses

The fine against Wells Fargo was widely expected. DW Labs
Updated 20 April 2018
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Wells Fargo to pay $1B for mortgage, auto lending abuses

  • Fine the latest in a series of setbacks for US bank
  • Federal Reserve in February prohibited lender from growing assets until governance issues addressed

Wells Fargo will pay $1 billion to federal regulators to settle charges tied to its mortgage and auto lending business, the latest chapter in years-long, wide-ranging scandal at the banking giant. However, it appears that none of the $1 billion will go directly to the victims of Wells Fargo’s abuses.
In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau.
The action by the CFPB is notable because it is the first penalty imposed by the bureau under Mick Mulvaney, who President Trump appointed to take over the consumer watchdog agency in late November. The $500 million is also the largest penalty imposed by the CFPB in its history, the previous being a $100 million penalty also against Wells Fargo, and matches the largest fine ever handed out by the Comptroller of the Currency, which fined HSBC $500 million in 2012.
The fine against Wells Fargo had been expected. The company disclosed last week that it was in discussions with federal authorities over a possible settlement related to its mortgage and auto lending businesses, and that the fine could be as much as $1 billion.
The settlement also contains other requirements that would restrict Wells Fargo’s business. The bank will need to come with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” said Wells Fargo Chief Executive Tim Sloan in a statement.
The $500 million paid to the Comptroller of the Currency will be paid directly to the US Treasury, according to the order. The $500 million paid to the CFPB will go into the CFPB’s civil penalties fund, which is used to help consumers who might have been impacted in other cases. But zero dollars of either penalty is going directly to Wells Fargo’s victims.
The bank has already been reimbursing customers in its auto and mortgage businesses for these abuses. Wells Fargo has been refunding auto loan customers since July and been mailing refund checks to impacted mortgage customers since December.
While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.
“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!,” Trump wrote on Twitter back in December.
The abuses being addressed Friday are not tied directly to Wells Fargo’s well-known sales practices scandal, where the bank admitted its employees opened as much as 3.5 million bank and credit card accounts without getting customers’ authorization. But they do involve significant parts of the bank’s businesses: auto lending and mortgages.
Last summer Wells Fargo admitted that hundreds of thousands of its auto loan customers had been sold auto insurance that they did not want or need. In thousands of cases, customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.
In a separate case, Wells Fargo also admitted that thousands of customers had to pay unnecessary fees in order to lock in their interest rates on their home mortgages. Wells Fargo is the nation’s largest mortgage lender.
Wells Fargo has been under intense scrutiny by federal regulators for several months. The Federal Reserve took a historic action earlier this year by mandating that Wells Fargo could not grow larger than the $1.95 trillion in assets that it currency held and required the bank to replace several directors on its board. The Federal Reserve cited “widespread abuses” as its reason for taking such an action.
This settlement does not involve Wells Fargo’s wealth management business, which is reportedly under investigation for improprieties similar to those that impacted its consumer bank. Nor does this involve an investigation into the bank’s currency trading business.
Consumer advocates have been critical of the Trump administration’s record since it took over the CFPB late last year. However, advocates were pleased to see Wells Fargo held to account.
“Today’s billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo’s fraudulent and abusive practices,” said Pamela Banks, senior policy counsel for Consumers Union.


INTERVIEW: SABB Managing Director David Dew steering through historic transaction in Saudi banking

Updated 21 October 2018
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INTERVIEW: SABB Managing Director David Dew steering through historic transaction in Saudi banking

DUBAI: David Dew has been working in banking in the Middle East and other emerging markets for 40 years, and you might think he has seen it all. But the merger between SABB and Alawwal in Saudi Arabia — which he is steering through to completion next year — is a career achievement for him.
“I think it’s a clear case of a win-win situation, and all our stakeholders will get benefit from it. It’s a genuinely exciting landmark transaction, and a significant transformation for the Kingdom,” he said.
It is a historic transaction, Dew explains. “It is the third biggest banking merger in the history of the region — the other two were in the UAE with significant government ownership — so SABB-Alawwal is also the biggest private banking merger for 20 years. It’s the first since the Capital Market Authority (CMA) was formed and the first since the new takeover rules came in.”
The merger will create the third biggest bank in the Kingdom by assets, loans and deposits, and — perhaps more significant in the current financial environment — forge a bank that is unashamedly international in its outlook. The transaction has its origins in the different imperatives of foreign banks operating in the Kingdom. Saudi Arabia has been identified as a global growth market by HSBC, which holds 40 percent of SABB — full name the Saudi British Bank.
Alawwal — the “first bank” in Arabic, reflecting its long heritage in the Kingdom — was dominated by a consortium of foreign banking interests, notably cash-strapped RBS (Royal Bank of Scotland) of Britain. RBS and its consortium partners — from Spain and Holland — wanted to reduce their overseas footprint. Getting out of Alawwal was a logical move from that perspective.

RBS and the Spanish bank Santander — which would each have about 4 percent of the enlarged company — have undertaken not to sell their shares for six months after completion.

The foreigners’ different strategic interests might have been the original spark for the merger, but Dew firmly believes it is in the best interests of the Saudi banking business, and bank customers. “Our first stakeholder is the Kingdom, and the merger is a great example of why and how Vision 2030 is actually working. It’s showing that Saudi Arabia is open for business. An important part of the Vision plan is the financial sector development program, and this merger shows it is working.
“The idea is to grow and develop capital markets, and this will help the Kingdom do that. It’s the kind of thing that just might not have happened even a few years ago.”
The next set of stakeholders he is working to satisfy is the regulatory establishment. The deal has been quite a long time in gestation, and much of that time has been taken up in getting it just right from a regulatory standpoint. “It’s taken a bit longer than you might have expected, but the regulators have been with us all the way — the CMA, the Saudi Arabian Monetary Authority, and the Ministry of Finance. All good things take time, and it is more important to do it right than to do it quick,” he said.
The next key group of stakeholders are the shareholders on both sides. In addition to HSBC and the RBS consortium, there are big investors in both banks in the shape of the Olayan conglomerate, and the government agency the General Organization for Social Insurance. Both have recused themselves from involvement in the merger negotiations. But both boards have recommended the merger terms.
“We’ve explained the business rationale and made a compelling case to them that the merger creates value. There will be a circular from both parties to all shareholders, we hope, by the end of the year.”
The next stakeholders on the list are the customers. “I know it’s a cliche that the customers are all important, but it’s true, and they will see real benefits,” Dew said.

(Illustration by Luis Grañena)


Comprising as much as 75 percent of the new bank’s business, the corporate sector will be crucial. “It will be the leading corporate bank by lending, and will offer other products, too, for example trade finance. It will also be the leading cash management business, and a significant foreign exchange provider.
“I think it will occupy a powerful corporate position and overall will be a bellwether for the underlying economy, so it will be followed closely by anybody interested in the Kingdom’s business,” Dew explained. With a market capitalization of about SR65 billion ($17.33 billion) and a sizeable free float on the Tadawul, it will be valuable proxy for investment in the modernizing Kingdom.
The new bank will also use its connection with HSBC’s powerful investment banking operation in Saudi Arabia to help satisfy customers’ needs in that segment.
In the retail sector, it will never be as big as NCB or Al Rajhi, market leaders with more than 50 percent of the retail market between them. But with about 10 percent of the Kingdom’s retail market, Dew feels it will be approaching the “tipping point” at which it becomes a serious player.
“The home loans market is critical. We estimate we’ll have 16 percent of that market, which is vitally important to the changes that are happening in the Kingdom,” he said. It will also have around 20 percent of the Saudi credit card market, he estimated.
“We will redouble our efforts to offer a good SME (small and medium-sized enterprises) proposition. SABB has not done enough in this sector, but we will do more, and the ability to do it will be enhanced by the merger,” he added.
“For corporate customers, we will be able to offer the biggest balance sheet and underwriting capability, which adds up to more ‘muscle’ for corporate clients. For retail customers, we will offer additional scale and focus, especially on the digital side. This is the future for the retail banking business, and we will build on Alawwal’s strengths here. They are pretty good in digital already. They have punched above their weight,” Dew said.
The final group of stakeholders are the employees. “Again it is trite to say ‘We are nothing without our people,’ but I happen to believe it. We have promised and we mean it, that there will be no involuntary redundancies. That does not mean there will be no losses through attrition. People come and go all the time, so that is only natural,” Dew said.
The new bank will have 4,800 employees, more than 90 percent of them Saudi citizens and 20 percent women. Its new chairperson will be Lubna Olayan, head of the eponymous conglomerate and one of the leading business figures in the Kingdom. “She has a track record in business, leadership expertise and international connectivity. To have somebody like that as chair of the new bank is an incredibly powerful statement. She will also be the first female chair of a listed Saudi company,” said Dew, who will be managing director of the new entity.
The bank will start operating in what Dew sees as an improving economic and financial environment in the Kingdom, with the long-promised privatization and initial public offering program materializing. “Two years ago, growth and bank lending were falling. In 2018 there has been a modest but significant improvement, and I do believe next year is going to show further improvement.”
On the geopolitical background, always a big factor in the business climate in the region, he brings a historical perspective to bear.
“When I came here 40 years ago, Israel-Palestine was the big issue. Since then, the region has become even more complicated and volatile. But business has navigated through these problems and I’m confident it will do so again. It’s all about having strong foundations,” he said.