A THOUSAND CUTS? LET'S HOPE NOT!

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Getting to the bottom of the conduct issues facing Wells Fargo & Co. continues to plague the bank, its board, C-Suite and staff, as well as clients. More bad news seems to come out every couple of weeks making one wonder if this is a death of a thousand cuts. Let's hope not! Wells Fargo is a leading financial services brand and many thousands of its bankers and advisors provide an invaluable role to its clients around the world.  

Wells Fargo is not the only firm facing growing conduct charges. The CCP Research Foundation (http://conductcosts.ccpresearchfoundation.com) identified some £160 billion in conduct related charges for the world's biggest ten banks for the proceeding 5 years as of 2013. The Guardian is now reporting that CCP is reporting growth in global conduct charges, and now have measured cumulative costs of twenty of the largest banks for the 5 years ending 2016 of some £264 billion. My expectations that much of the mortgage related conduct charges should tapper off soon. 

However, Wells Fargo has reported one after another faux pas in the area of conduct and folks are beginning to take notice and measurable costs are adding up (I would be more worried about the more difficult costs to measure, such as growing dis-satisfaction in the ranks, lost revenue opportunities and potential impact to brand). On the back of the mis-selling scandal from last year, the San Francisco Chronicle has reported some $110 million in class action settlements and $185 million in conduct fines. Earlier this month, a WFC 10Q filing reported that the bank has identified issues with calculations associated with GAP coverage for its vehicle clients (GAP covers a potential negative equity gap in a financing contract), as reported by Moody's. This is on top of other potential conduct issues announced in its consumer loan activities in July related to auto insurance practices. The rating agency observes the bank sees growing legal risks amounting to some $3.3 billion as of mid year which is up from $1.3 billion at year end 2015. 

Board changes are already afoot and new blood is on the way from a corporate governance perspective. I am now preparing a course plan for a week long session on banking regulation and ethics and the introduction of a full scale ethical framework to all staff may next be considered. Large banks are a challenging environment to mitigate reputational and ethical lapses, as noted by Professor Ingo Walter at NYU Stern (see The Value of Reputational Capital and risk in banking and finance, International Journal of Banking, Accounting, and Finance, 5(1/2) 2013). Professor Walter posits that leadership, more than anything else, separates the winners from the losers in the long term. I would add to the energy and the ability of the board and its ethical-driven endeavours to reach down into the organisation at the grass roots level to bring about real change may be a key objective to fully turn this around.   




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