Wells Fargo, AIG: The Weekly Financial Services Recap

Despite the summer doldrums, regulators and dealmakers continued to make changes.
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NEW YORK (

TheStreet

) -- It's evident that we're in the waning days of summer when some of the biggest news items on Wall Street were a judgment against

Wells Fargo

(WFC) - Get Report

regarding overdrafts and

a nun suing

Morgan Stanley

(MS) - Get Report

.

On Tuesday, a judge handed down a decision against Wells Fargo regarding its fee-collection practices on customers who attempted to withdraw too much money from checking accounts. Wells will have to reimburse $203 million worth of overdraft fees as a result.

Wells had been engaged in a routine practice across the banking industry. It processed debit-card transactions by rank of highest dollar amount to lowest dollar amount, rather than the order in which they occurred. This led to a depletion of funds more quickly, and multiple overdraft fees as a result.

U.S. District Judge William Alsup didn't have kind words. He decided that Wells had engaged in "unfair and deceptive business practice," "gouging" and "profiteering" and ordered the bank to give customers their money back.

The banking industry was forced to change its overdraft practices earlier this year as a result of new regulation. Now, customers will have to opt into the so-called "protection," in which banks charge a fee for covering the transaction, even if funds aren't available. If customers don't opt in, their transactions will be denied by default.

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The decision against Wells was startling in part because the company didn't have as much of a reputation as a fee-charger as other big-bank competitors like

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

Citigroup

(C) - Get Report

. All of the firms stand to lose hundreds of millions of dollars because of a rule change called "Reg E," as well as the CARD Act that was implemented earlier this year. The lawsuit could potentially set a precedent for other litigious consumers ahead.

Over the course of a generally gloomy week for the financial markets, Wells' stock declined 6.9%, to $25.84; Bank of America dropped 5.2%, to $13.23; JPMorgan Chase fell 7.3%, to $37.50; and Citi dropped 4.4% to close at $3.88.

Elsewhere in the financial sector,

American International Group

(AIG) - Get Report

continued to make snail-like progress on a deal that has been months in the making (and restructuring).

AIG is now trying to spin off its Asian life insurance unit, AIA, in an IPO abroad. But even this latest proposal has had a few monkey wrenches thrown in.

Initially, AIA was supposed to be sold to the British insurer Prudential Plc, in a deal proposed March 1. But Prudential shareholders balked at the price, then AIG's board balked at lowering it, and AIG's sometimes-cheeky CEO

Robert Benmosche balked at having to deal with then-Chairman Harvey Golub anymore. (There was a lot of balking going on.)

Since then,

Golub has departed and Benmosche agreed to sell AIA to the market in an IPO, an idea he was initially opposed to. There were whispers earlier in the week that large institutional investors and wealthy foreigners were interested in grabbing a big piece of the pie, but apparently they've started to balk at the price, too.

AIG did appear to make progress elsewhere in its restructuring efforts.

Fortress Investment Group

(FIG)

agreed to purchase 80% of its American General Finance unit, which caters mostly to non-prime borrowers around the U.S.

But over the week, AIG's shares fell 10.4%, closing the week out at $36.67.

In Washington -- which isn't quite as far removed from Wall Street as it once was -- debate continued over the bailouts of the past and the regulation of the future.

Regulators argued about how the impact of implementing new standards might affect the various financial institutions they're responsible for. For instance, while the

Securities and Exchange Commission

put a temporary moratorium on using ratings agencies to determine the safety of bond deals, banking regulators are apparently unsure they can do without them.

An article in the

Wall Street Journal

outlined the concerns of various regulators, from the impact of new rules on capital levels, to the cost of implementation for smaller banks, to the timing of when rules ought to be put in place.

Meanwhile, Congress finally figured out (just a couple of years after the fact) that bailout money helped not just U.S. banks, but foreign ones as well.

The Congressional Oversight Panel cited funds made available to pay AIG's counterparties. The findings were presumably shocking to lawmakers, but the largest recipient wasn't

Goldman Sachs

(GS) - Get Report

, but Société Générale. Other major foreign firms, including

Deutsche Bank

(DB) - Get Report

,

Barclays

(BCS) - Get Report

,

Credit Suisse

(CS) - Get Report

,

UBS

(UBS) - Get Report

and

RBS

(RBS) - Get Report

, among others, also received money funneled through AIG from government coffers.

It's interesting that so much hay was made of the news of "European bank bailouts," since AIG had

publicly released its counterparty payments in March 2009. Regulators who structured the deals obviously had access to that information much earlier, and had reportedly pushed AIG to keep it under wraps.

A few personnel moves around Wall Street also made headlines this week.

Most prominently, restructuring champion Ed Whitacre

stepped down as CEO of General Motors, ahead of the company's second debut as a publicly traded firm. Former Treasury Secretary, Citi Chairman and Goldman board member Robert Rubin also moved from his position as an adviser to two hedge funds, to take up a role counseling the private-equity powerhouse Centerview Partners.

Meanwhile, a prominent bond trader at Goldman Sachs named Edward Glenn Hadden has curiously gone AWOL without explanation, according to the

Wall Street Journal

.

-- Written by Lauren Tara LaCapra in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.