Following intense public scrutiny over customer account fraud and other legal violations and the loss of its CEO, John Stumpf, Wells Fargo announced today that is has sold all of its retail branches in Michigan, Indiana, and Ohio to Flagstar Bancorp. Several branches in Wisconsin were also sold. The disclosed terms related to the sale are $2.3 billion in deposits and about 500 employees will be offered full-time positions with Flagstar. In total, 52 branches will change ownership along with customer accounts and their deposits. Wells Fargo will maintain a commercial lending, home mortgage, and private wealth office presence. Yahoo!Finance
News broke two (2) years ago that retail bankers created millions of false accounts to inflate performance metrics without the customers’ knowledge. Whistleblowers and former employees revealed a punitive environment where managers fired employees for not reaching the unattainable sales goals. On top of that, this year Wells Fargo was fined a record $1.1 billion for auto insurance and mortgage lending abuses by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC). A third government agency, the US Federal Reserve, has restricted Wells Fargo from being able to expand any of its business units.
Wells can recover from the $1.1 billion in fines, but its reputation with the public and US regulators presents an entirely distinct wall of challenges. It’s only June, so let’s see how this play out over the rest of the year. Keep an eye on their corporate bond and stock performance. It’ll be a major indication of the sentiment that other institutions and the investing public have towards the banking giant.