Wells Fargo has lost its status as the world’s most valuable bank, following a drop in its market capitalisation in the wake of regulators’ disclosure that the bank signed up as many as two million customers for accounts and credit cards without informing them.
The US banking giant was fined a total of US$185m last week, including a penalty of US$100m from the US Consumer Financial Protection Bureau (CFPB), for offences that included secretly issuing credit cards for customers without their consent; creating fake email accounts to sign up customers for online banking services and establishing fake accounts that customers only learned off when they began accumulating fees.
Wells Fargo has responded by announcing plans to abandon sales targets for branch staff from the start of 2017. However, its share price has fallen further as analysts suggest that the move to restore consumer trust is also likely to dent the revenues that the bank derives from account fees, by curtailing its ability to “cross-sell” sell multiple accounts to customers.
Although the fall in the bank’s share price since the scandal broke has been limited to 6%, its market capitalisation has dropped to around US$235bn – some US$4bn less than that for JP Morgan Chase – putting Wells Fargo behind its rival for the first time since early 2013.
The bank also faces potential political repercussions. A spokesperson for US senator Richard Shelby, chairman of the Senate banking committee, said that it had scheduled a hearing on the Wells Fargo scandal for next Tuesday (September 20) and will invite the bank’s chief executive officer (CEO) John Stumpf to attend. The decision to hold a hearing comes after Elizabeth Warren and four other Democratic senators called for immediate hearings to “fully investigate the matter.”
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