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"But that $3 billion represents only a small part of the bank’s takings from just this one scam—customer money to which, by its own admission, it “was not entit
by Mvandenbergh 7y ago
"But that $3 billion represents only a small part of the bank’s takings from just this one scam—customer money to which, by its own admission, it “was not entitled.”"
This is totally incorrect. The best estimate of how much money was made from the fake accounts scandal is... about $2m gross. That's for a pretty obvious reason which is that it is very hard to secretly charge people money and very easy to secretly open an account for them which then goes unused.
Essentially, WF did not really profit from this, it was the employees and officers who were fleecing the company and fraudulently opening accounts to do so.
Branch employees were incentivised to sell products like accounts and cards to customers on the theory that WF profited from such sales. Compensation for the employees was set based on an assumed / historical profit per cross-sold product. Senior management had incentive packages that were also based on that assumed link. But of course that was calibrated based on real accounts. Shadow accounts that are setup but not used by the customer (because they don't know they exist) do not and cannot produce profit for the bank. What the bank would have seen over time was number of products sold going up but profit per product going down. Since the former is a leading and the latter a lagging indicator, it can be a long time before that becomes apparent.
From the point of view of WF, this was the dumbest possible fraud because it didn't make them money. I bet that $2m in account opening fees actually comes from the less experienced crooked branch staff because it seems like a rookie mistake that would lead to you getting caught.
Of course there is no such person as "Wells Fargo", and from the point of view of the branch and management employees whose compensation depended on these cross-sales numbers, the scam worked just fine until they were caught.
- tantalor 7y agoSemantics. Taking (income) and making (profit) are different things. Both are true: WF took $3b, WF made $2m.
- Mvandenbergh 7y agoWhere does the 3bn come from though? I'm saying that the gross revenue was $2m. Is the 3bn total damage to customers including credit score hits?
- profbarnhouse 7y agoIt is a scam to inflate the stock price by posting constantly improving (fake) revenue numbers and reporting them at earnings calls and conferences. Not just the fees made by fake accounts but also signing auto loan customers for duplicative insurance, signing up for credit cards, etc.--all to show that more people are using their services and gain investor confidence.
- brogrammernot 7y agoI fully believe that the former CEO didn’t actually know what was going on and was just looking at top line metrics. You have this in many companies, not the fraud part, but the mantra to be succcessful at whatever cost. In this instance, that permutated down to the branch workers who were incentivized to skirt the rules & meet the metrics set. Kinda feels like the housing market when loan officers were paid a ridiculous amount for variable interest housing loans versus fixed loans. The banks and everyone were buying them up as that was their top line metrics but ignored how it was actually happening. I hold the CEO and other top executives there for staying ignorant but I agree, this made minimal money for WF so I don’t think it was the true intent of the CEO to have this happen but they should’ve looked into how markets with not large enough populations had so many accounts. They didn’t and deserve the punishment.
- dv_dt 7y ago"incentivized" is a weak way to put it. Many employees tried to report the problems, and some were even blacklisted from the industry for doing so while others were threatened with blacklist. https://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle https://www.npr.org/sections/money/2016/10/07/497084491/epis...
- wayoutthere 7y ago"Snitches get stitches" extends to the corporate world too.
- asdfman123 7y agoWhat get measured gets improved.
- rgbrenner 7y agoNo, you've incompletely identified fraud victims, and as a result have miscalculated the amount fleeced. The scam goes like this: WF open large numbers of fraudulent accounts, this pumps up some of their customer stats before the fraud is discovered: They get to claim their customers do more business with them, use more of their products, and that they are seeing growth in various areas (more customers using each product). These stats are flaunted to investors, who assumed that the increase in accounts (a leading indicator) would lead to an increase in profits (a lagging indicator). The investors would then put in money, boosting the stock price.. allowing the executives to sell their stock at inflated prices, allowing WF to raise money for less stock, etc. WF committed fraud on their customers so that they could pump up their numbers and fleece money from their investors. Even after the investigations started and they were notified, they hid it from investors for 6 months... the investors found out when the news picked it up. The damage they've caused was much more than $3B.
- Mvandenbergh 7y agoYou're right that this was primarily a scam on investors, the customers were incidental. Measuring harm to investors is complicated though. Any investors who bought after the fake gains and did not sell before the scam was exposed have been harmed but other investors have actually gained. I would be interested to see a calculation (by someone other than a prosecutor) of this harm. Unfortunately there is no way of holding "the bank" accountable for that because the punishment for causing investors to lose money is to fine the bank which is owned by those same-(ish) shareholders. It is more accurate to ignore the existence of the legal entity "WF" and deal only with the natural persons. Employees / executives conspired on a massive scale to defraud the shareholders by collecting undeserved incentive payments and realising artificial gains on any stocks they sold. Some investors benefits and some lost out depending on timing of purchase and sales of the stock. A small number of customers suffered miniscule and temporary incidental harm to credit scores and an even smaller number suffered actual cash harm through paying account fees for accounts they did not ask for.