Wells Fargo is paying hundreds of millions of dollars to repair the damage from its sales scandal in which employees opened as many as 2 million fake accounts for consumers without their permission.
But even that won’t be enough for Wells Fargo (WFC) to put the scandal in its past for good.
After announcing earlier this week that the bank would revoke or clawback compensation worth $180 million for its former CEO John Stumpf and exec Carrie Tolstedt, who was largely blamed for the problems, Wells Fargo revealed Thursday during its first quarter earnings that it had also spent about $80 million this year in relation to the controversy.
That’s on top of the $185 million fine Wells Fargo paid last year when news of the scandal first broke, and much more than the $40 million to $50 million the bank had expected to spend on those costs for the quarter when it last reported earnings in January. The expenses also boosted Wells Fargo’s overall costs during the period by 6%, or $764 million more than it spent the same quarter last year.
And the costs continue to pile up. Wells Fargo now expects that cleaning up after the accounts scandal will cost it $70 million to $80 million “for the next couple of quarters,” according the chief financial officer John Shrewsberry. That means the bank could spend as much as $240 million this year due to its transgressions, bringing its total bill for the fake accounts as high as $425 million.
That’s the price of Wells Fargo’s plan to regain both government and consumer trust. According to Shrewsberry, Wells Fargo has several outside firms reviewing the company as part of its settlement with regulatory agencies, along with those it hired to investigate of other parts of its sales practices. That means it will continue to rack up expenses associated with the scandal even after the company’s board completed its own internal review of the matter, which involved some 100 interview and 35 million documents.
But here’s the kicker: Despite the hundreds of millions spent, Wells Fargo may never grow as fast as it did before the fake accounts problem.
Consumers opened 35% fewer checking accounts with Wells Fargo in March than they did the same period last year, the bank said Thursday. That represented the bank’s seventh straight month of declines.Credit card applications also fell 42% during the quarter.
Now, Wells Fargo isn’t sure it will ever recover from the slowdown. That’s because part of the reason why Wells Fargo was able to clock in impressive account opening figures in the past—posting a 5% increase in checking accounts in the first quarter of last year—was due to high pressure and incentives for employees to hit their sales goals, which ultimately led some to create accounts fraudulently. But Wells Fargo has since eliminated those sales goals and incentives in its attempt to fix the problems.
“I didn’t mean to suggest that we think we’re going to get back to exactly those [pre-settlement] numbers,” Shrewsberry said during the call. “We certainly could imagine an environment where, let’s say, the rate of new primary checking growth in community banking may be lower than pre-settlement levels.”
But Shrewsberry offered some reassurance to investors: While account growth may not be as stellar as before, he doesn’t expect Wells Fargo’s revenue to take a hit, because each customer is likely to be more valuable and spend more at the bank than they did just a year or two ago.
