8 ms·
I think Matt Levine's take on this is right on: https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www
by dzdt 10y ago
I think Matt Levine's take on this is right on:
https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www.bloomberg.com/view/articles/2016-09-09/wells-far.... Senior management wanted employees to do REAL cross-selling to make money, but the metrics were set so high that employees turned to fake accounts to meet the standard. The fake accounts did not benefit the bank in any substantial way:
So that's about 2.1 million fake deposit and credit-card accounts, of which about 100,000 -- fewer than 5 percent -- brought in any fee income to Wells Fargo. The total fee income was $2.4 million, or about $1.14 per fake account. And that overstates the profitability: Wells Fargo also enrolled people for debit cards and online banking, but the CFPB doesn't bother to count those incidents, or suggest that any of them led to any fees. Which makes sense: You'd expect online banking and debit cards to be free, if you never use them or even know about them. Meanwhile, all this dumb stuff seems to have occupied huge amounts of employee time that could have been spent on more productive activities. If you divide the $2.4 million among the 5,300 employees fired for setting up fake accounts, you get about $450 per employee. Presumably it cost Wells Fargo way more than that just to replace them.
It seems senior management set up a stupid employee incentive program, but were not intentionally involved in the fraud.
- toyg 10y agoThere's still a duty of vigilance.
- Symmetry 10y agoAnd IANAL but that's a tort, not a crime.
- makomk 10y agoMatt Levine just shows that Wells Fargo wanted a paper trail showing that they told employees not to do this. The interesting question is, what happened when whistleblowers told them it was happening anyway? Apparently, the answer is that they fired the whistleblowers. That says everything about what Wells Fargo really wanted, as opposed to what they said to cover their asses. Remember, he's an industry insider with a bias.
- gooserock 10y agoI'm shocked - shocked! - to find that gambling is going on here!
- louprado 10y agoFor those that don't get the above reference https://www.youtube.com/watch?v=nM_A4Skusro https://www.youtube.com/watch?v=nM_A4Skusro
- throwaway2016a 10y agoExplain what exactly Wells Fargo upper management had to gain from the fake cards? They wouldn't generate real money for the company. The people who stand to benefit most are the individual employees. I don't know the banking industry well so maybe there is some way for the company to make money off fake cards but I can't think of one. And because of that, I tend to believe that upper management really did not intend it to happen.
- jontas 10y agoIf you own stock in the company and this causes the stock to go up (even if the rise is artificially inflated) you can still make plenty of money.
- throwaway2016a 10y agoYeah but what about fake accounts would make the stock go up? Wouldn't it actually make the revenue per account go down which would seem to me to be negative indicator. But again, I don't know the banking industry.
- conductr 10y agoGrowth metrics
- deleted 10y ago[deleted]
- pmorici 10y agoThis ignores that top management is also paid in large part with company stock and in the 5 years prior to this being discovered the stock doubled. One of the metrics that had investors excited was the increasing number of accounts which was publicly reported.
- Esau 10y agoI would have an easier time believing this if the company had not retaliated against people who tried to complain internally.
- danielweber 10y agoThey fired thousands of people for creating accounts without permission. It's hard to say they looked the other way.
- JustSomeNobody 10y agoIt doesn't seem possible that 5000(!) employees did this and the CEO had not a clue.
- dx034 10y agoOf course it is. In a company that size where employees work all across the country it's actually very hard for the CEO to find out about sth like this. He can only create structures (e.g. internal audit team) that are powerful enough to detect it and report it to him.
- cwillu 10y agoDid you know that there's a reality tv show based on this premise?
- danielweber 10y agoMaybe they should have figured out that their incentive structures were wrong when they had to fire 5000 people over several years. But the very act of firing thousands of people shows that they were discouraging it, strongly.
- wdr1 10y ago"Give a manager a numerical target & he will hit it, even if it means destroying the company to do so."