The costs of misconduct for Wells Fargo has begun to be revealed, and its is not a pretty sight. You will remember that Wells Fargo, a beacon of risk governance in US banking, has been hit earlier this year by a mis-selling scandal and false account openings.
The FT (December 17th/18th 2016, Companies and Markets coverpage) reports that the BHC has experienced a 41 reduction of new account openings by customers last month as client's shied away from the somewhat tarnished brand. This is a sad statistic from an otherwise strong banking player with a long history of good risk management, which stems back from its acquisition of Norwest Corp in 1988 which was itself largely viewed as a leading practitioner of good risk management. The FT reports that new accounts have been declining since August when the scandal first materialized. Other potentially related costs, if even indirect, includes the suspension of a marketing deal with Prudential Financial and regulatory action by US supervisors which removes the right of the bank to establish new international units or buying non-banking entities. No doubt operating risk will be reviewed on the back of this episode.
Misconduct by banks can have long standing and real economic costs if things go awry.
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