Wells Fargo (WFC) - Get Report boosted its estimate of possible litigation losses by 70%, to $1.7 billion, as the Securities and Exchange Commission joined regulators probing the bank's handling of a scandal involving as many as 2 million bogus customer accounts.
That amount, which isn't reflected in Wells Fargo's profit-and-loss statements, is in addition to so-called probable losses that the bank does include, though the amount isn't specified. The estimate, listed in the bank's third-quarter regulatory filing on Thursday, compares with an assessment of $1 billion at the end of June.
Wells Fargo didn't say which legal matters spurred the $700 million increase, though the San Francisco-based bank provided ligation updates on mortgage-lending probes and debit-card purchase lawsuits in addition to the retail division's sales-practices cases. Peter Gilchrist, a company spokesman, said in an e-mail that the figure reflected "a number of matters."
The company, which once had a market valuation larger than JPMorgan Chase's (JPM) - Get Report , has lost 8.9% of that since the bogus accounts were disclosed in a $185 million settlement with federal and local regulators in September. The revelation prompted an immediate backlash of lawsuits as well as probes by the Department of Justice and state attorneys general, and has cost Wells Fargo lucrative business deals with states from California to Illinois and Ohio.
Chairman and CEO John Stumpf abruptly retired in mid-October after testifying in two Congressional hearings and giving up $41 million in unvested stock awards. The company's independent directors, led by Stephen Sanger, who was named chairman after Stumpf's departure, have launched an internal probe, which is still ongoing, according to a person familiar with the matter.
"There are things that need to be fixed within our culture, and these weaknesses must be addressed," Tim Sloan, who succeeded Stumpf as CEO, told analysts at a Thursday conference. "My primary objective and the objective of our senior leadership team is to restore trust in Wells Fargo. That includes rebuilding pride in our company and our vision of meeting customers' financial needs."
Well's Fargo's scandal has already had ramifications well beyond the San Francisco-based bank, with executives at JPMorgan, Citigroup (C) - Get Report andBank of America (BAC) - Get Report fielding questions about their own consumer sales practices during third-quarter earnings calls in October.
While all of them said they had found nothing comparable to Wells, where unauthorized accounts were set up by employees trying to meet sales goals of as many as eight different products per customer, the scandal nonetheless heightens scrutiny of an industry already the object of public ire since the 2008 financial crisis wiped out trillions of dollars in market value.
"The evidence is pervasive that deep-seated cultural and ethical problems have plagued the financial services industry in recent years," New York Federal Reserve President William Dudley said at a conference on reforming behavior in the industry in late October.
Unethical behavior in businesses from investment banking to securities markets and consumer branches has eroded trust in the industry and hindered its ability to do its job, said Dudley, whose organization is responsible for regulating the major Wall Street firms.
Indeed, Wells Fargo's Mary Mack, who was named head of the retail bank after predecessor Carrie Tolstedt left amid the accounts probe, said at Thursday's conference with Sloan that the number of new checking accounts opened in September fell about 30% from August and were down 25% from a year earlier.
Those numbers don't include a full month's worth of impact, since the fake-account settlement wasn't announced until Sept. 8, added Sloan, who attempted to clarify an October statement that the retail bank's situation might "get worse" before it improved.
"My expectation is that when we report detailed October metrics, they're going to be softer than what we saw in September," he said.