Wells Fargo Says Bitcoin Too Risky for Clients, Pays $575 Million Fine For Scamming Them

Wells Fargo, the third-largest US bank with $2 trillion in assets, will pay a $575 million settlement after admitting that it systematically scammed its own customers for 15 years. Ironically, the fine comes just months after the banking giant dismissed bitcoin as too risky an investment.

Pursuant to a nationwide federal investigation, Wells Fargo admitted that its employees opened more than 3.5 million sham, unauthorized bank and credit card accounts in customers’ names between 2002 and 2017.

The bank then illegally charged its clients for various financial services products they never signed up for, such as life-insurance policies and collateral protection insurance on millions of auto loans.

Employees claimed they engaged in this widespread fraud because were afraid to lose their jobs if they didn’t meet Wells Fargo’s aggressive sales goals.

Over $2 Billion in Fines Since 2016

The settlement will be distributed to all 50 US states and the District of Columbia. Wells Fargo will also open a consumer restitution review program, to ensure that anyone who was illegally charged for a service they never authorized gets reimbursed.

The revelation of this fraudulent scheme in 2016 led to the resignation of Wells Fargo’s CEO at the time, John G. Stumpf.

After settling with the Consumer Financial Protection Bureau, Wells Fargo still faces ongoing investigations by the Securities and Exchange Commission, the Department of Justice, and the Department of Labor, according to its most recent securities filing.

Wells Fargo has racked up more than $2 billion in fines since its fake-accounts scandal was revealed in 2016.


California attorney general Xavier Becerra torched Wells Fargo for its gross violation of consumer protection laws.

In a December 28 statement, Becerra said Well Fargo’s unconscionable abuse of its own clients undermines consumer confidence in the banking system.

“Instead of safeguarding its customers, Wells Fargo exploited them, signing them up for products — from bank accounts to insurance — that they never wanted,” Becerra said.

This is an incredible breach of trust that threatens not only the customers who depended on Wells Fargo, but confidence in our banking system. Wells Fargo’s conduct was unlawful and disgraceful.

Irony Alert: Wells Fargo Shades Crypto

Ironically, in June 2018, Wells Fargo banned its customers from using their credits cards to buy cryptocurrencies, as CCN reported. The ban was enacted just as the bitcoin bear market was going into overdrive.

In a statement, Wells Fargo cited the “multiple risks associated with this volatile investment” for its decision.

“Customers can no longer use their Wells Fargo credit cards to purchase cryptocurrency,” a bank rep said in a statement. “We’re doing this in order to be consistent across the Wells Fargo enterprise due to the multiple risks associated with this volatile investment.”

Many in the crypto community say this latest banking scandal is yet another example spotlighting the epic failure of centralized financial institutions.

Between this and the Federal Reserve’s latest interest rate hike (its fourth in 2018), bitcoin evangelists say it’s time to dump corrupt legacy banking systems.


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Author: Samantha Chang
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Bank earnings: Expect a strong first quarter, but more questions lie ahead

What should investors expect from first-quarter bank earnings?

The answer, from multiple industry veterans, is a decided “it depends.” The macro business environment should be good for banks: the economy is strong, taxes have just been cut, and regulations are likely to be rolled back.

But a peek under the hood reveals that not only is the devil in the details, but that even the broad themes may not boost market views of bank stocks, especially if management only sees more of the same on the horizon.

As Karen Petrou, managing partner for Federal Financial Analytics, put it, “This is a period of enormous policy volatility. This is a government of, by, and for tweets. It’s extremely hard to discern the direction of policy and that makes stable markets and corporate forward-looking strategic judgements based on policy very difficult.”

Normal uncertainties about policy are amplified even more now, Petrou said. It’s possible for investors to spend time analyzing the winners and losers from a trade war, for example—but even that’s not a given right now.

One positive from the uncertainty, Petrou said, is that in coming months, market choppiness will be a boon for banks: “Volatility is their lifeblood. They can’t make money when nothing changes.”

Jason Goldberg, chief bank analyst for Barclays, broke down the quarter’s specifics in a recent research note. He expects slower-than-expected growth in commercial real estate and subdued overall loan growth “but more positive outlooks.” Net interest margins—the difference between what banks make on lending versus what they pay to depositors—will expand—but banks will put aside more to cover for expected losses from loans they make. Goldberg also expects “only modest growth” in revenues from trading, and lower investment banking fees, although there’s a possibility of stronger investment banking activity in the future.

But those business conditions say little about market reactions. Petrou thinks much of the tax cut, the promise of regulatory reforms, and the possibility of steadily rising interest rates, could already be priced in to stocks. “If it’s fully priced in, the question is, for further gains what else is needed?” she said.

According to Goldberg, “Bank stocks (and the market) have been more volatile of late. On some days the market seems to want to focus on the positive data points and on others it focuses exclusively on the negative ones.”

For Chris Whalen, a long-time bank analyst, there’s a clear short-term story and a less-clear long-term outlook. “Earnings are going to be great because of the tax bill, banks have one-third more income to distribute to shareholders and so clearly the numbers are going to be higher. They’re also going to be buying back stock pretty aggressively.”

Whalen has been gloomy about the banks’ ability to make profits in the “new normal” post-crisis landscape, even without Washington uncertainty.

“Banks don’t have as many ways to make money, costs are up and the spread environment has compressed loan spreads,” he said. “Their ability to generate raw revenue, pre-tax, has diminished a lot but they’ve gotten bigger and raised more capital. They’ve been delivering earnings but mostly from a cost-cutting perspective. They are constrained in terms of future earnings because the competition for loans and other assets is intense. A big bank that’s still 8-9% equity returns, I don’t care what the earnings are, it just tells me that business is just utility and there isn’t much alpha.”

JPMorgan Chase & Co, Citigroup Inc. and Wells Fargo kick off earnings season on Friday, April 13—not that there should be anything frightful about that auspicious date, Goldberg wrote. Here’s what analysts surveyed by Factset expect for the coming quarter.

Analysts expect JPMorgan to report EPS of $2.28 in the quarter, up from $1.65 a year ago, and revenue of $27.7 billion, compared to $25.6 billion last year. Their average stock price target is $122.64 and average rating is overweight. The stock is up 30% over the past 12 months.

The Factset analyst consensus for Wells Fargo & Co. calls for per-share earnings of $1.06, compared to $1.00 a year ago. The consensus for revenue is $21.7 billion, down from $22.0 billion a year ago. The analysts have an average stock price target of $63.64 and an average hold rating. Shares of Wells, dogged by scandals, have lost more than 3% over the past 12 months; it’s the only one of the big four not to have beaten the Dow Jones Industrial Average over that period.

Factset analysts forecast per-share earnings of $1.61 for Citigroup Inc. compared to $1.35 a year ago, and revenue of $18.9 billion, versus $18.1 billion a year ago. Their average stock price target is $84.19 and average rating is overweight. Shares have risen nearly 19% over the past year.

Finally, when Bank of America Corp. reports on April 16, analysts expect earnings of 59 cents per share, up from 41 cents last year, and revenue of $23 billion, up from $22.2 billion. FactSet analysts have an average stock price target on BofA stock of $34.52 with an average overweight rating. The stock is up 31% over the past 12 months.

 


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Author: Andrea Riquier 
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