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Wells Fargo Faces Sanctions on 'Living Will' Deficiencies
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Wells Fargo & Company (WFC - Free Report) seems to close 2016 with yet another setback.
The San Francisco-based banking giant has been hit with restrictions by the U.S. regulators as the bank failed to “adequately remedy” deficiencies in its resolution plan. The plan, better known as “living will”, lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Notably, this turned out to be the second time this year that Wells Fargo flunked in the “living will” assessment.
Under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the banks (with total consolidated assets of $50 billion or more) are required to submit living wills. The main objective behind the submission of living will is to avoid re-run of the 2008 financial crisis and reduce the risks of further bailouts.
Earlier in Apr 2016, The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board determined, that along with Wells Fargo, resolution plans of four other companies – Bank of America Corporation (BAC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Bank of New York Mellon Corp. (BK - Free Report) and State Street Corp. – were “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.” These companies were required to remedy the deficiencies identified by the regulators, by Oct 2016. Notably, except Wells Fargo, the regulators found the remaining four companies have corrected the deficiencies.
Restrictions Imposed
According to the regulators’ joint release, Wells Fargo and its subsidiaries now face sanctions on international and non-bank activities. Particularly, Wells Fargo is barred from setting up international bank entities or acquiring any non-bank subsidiary.
By Mar 31, 2017, Wells Fargo is required to file a revised submission, addressing the shortcomings. However, if it fails again to correct the deficiencies, the regulators will limit the size of the company’s non-bank and broker-dealer assets. Further, in case Wells Fargo has not corrected the deficiencies within two years, the regulators may force the company to divest certain assets or operations.
Wells Fargo “Disappointed”
In its response, Wells Fargo expressed disappointment on the regulators’ decision as the company believed that it had taken necessary steps to address the regulators’ concerns and made improvements in areas identified.
The company stated, “Wells Fargo is committed to strengthening and enhancing its resolution planning processes, and we will continue to work closely with the agencies to better understand their concerns so that we can bring our resolution planning processes in line with their expectations. While we are disappointed with the determination issued by the agencies, we continue to be dedicated to sound resolution planning and preparedness. We believe we will be able to address the concerns raised today in the March 2017 revised submission.”
Stock Performance
The latest development is indeed another trouble for Wells Fargo, which continues to struggle with the scam over its sales practices that sparked political and public outrage, triggered numerous federal and state investigations and saw bank’s former CEO – John Stumpf – losing his job.
Amid its crisis, shares of Wells Fargo gained just 2.7% year to date, significantly underperforming the 19.6% growth for the Zacks categorized Regional Banks-Major industry.
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Wells Fargo Faces Sanctions on 'Living Will' Deficiencies
Wells Fargo & Company (WFC - Free Report) seems to close 2016 with yet another setback.
The San Francisco-based banking giant has been hit with restrictions by the U.S. regulators as the bank failed to “adequately remedy” deficiencies in its resolution plan. The plan, better known as “living will”, lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Notably, this turned out to be the second time this year that Wells Fargo flunked in the “living will” assessment.
Under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the banks (with total consolidated assets of $50 billion or more) are required to submit living wills. The main objective behind the submission of living will is to avoid re-run of the 2008 financial crisis and reduce the risks of further bailouts.
Earlier in Apr 2016, The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board determined, that along with Wells Fargo, resolution plans of four other companies – Bank of America Corporation (BAC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Bank of New York Mellon Corp. (BK - Free Report) and State Street Corp. – were “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.” These companies were required to remedy the deficiencies identified by the regulators, by Oct 2016. Notably, except Wells Fargo, the regulators found the remaining four companies have corrected the deficiencies.
Restrictions Imposed
According to the regulators’ joint release, Wells Fargo and its subsidiaries now face sanctions on international and non-bank activities. Particularly, Wells Fargo is barred from setting up international bank entities or acquiring any non-bank subsidiary.
By Mar 31, 2017, Wells Fargo is required to file a revised submission, addressing the shortcomings. However, if it fails again to correct the deficiencies, the regulators will limit the size of the company’s non-bank and broker-dealer assets. Further, in case Wells Fargo has not corrected the deficiencies within two years, the regulators may force the company to divest certain assets or operations.
Wells Fargo “Disappointed”
In its response, Wells Fargo expressed disappointment on the regulators’ decision as the company believed that it had taken necessary steps to address the regulators’ concerns and made improvements in areas identified.
The company stated, “Wells Fargo is committed to strengthening and enhancing its resolution planning processes, and we will continue to work closely with the agencies to better understand their concerns so that we can bring our resolution planning processes in line with their expectations. While we are disappointed with the determination issued by the agencies, we continue to be dedicated to sound resolution planning and preparedness. We believe we will be able to address the concerns raised today in the March 2017 revised submission.”
Stock Performance
The latest development is indeed another trouble for Wells Fargo, which continues to struggle with the scam over its sales practices that sparked political and public outrage, triggered numerous federal and state investigations and saw bank’s former CEO – John Stumpf – losing his job.
Amid its crisis, shares of Wells Fargo gained just 2.7% year to date, significantly underperforming the 19.6% growth for the Zacks categorized Regional Banks-Major industry.
Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>