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Wells Fargo faces $1B fine from federal regulators over mortgage, auto loan abuses

CLOSEWells Fargo faces $1B fine from federal regulators over mortgage, auto loan abuses

Wells Fargo CEO Tim Sloan took over the company last year after the fake accounts scandal. Time

Federal regulators are seeking a $1 billion payment from Wells Fargo to settle problems with mortgage and auto loan issues, along with compliance risk management concerns, the bank said Friday as it reported its first-quarter earnings.

Although the finances reported by the company topped Wall Street forecasts, the San Francisco-based bank warned that the results are subject to change due to continuing talks with the regulators.

Wells Fargo said it was “unable to predict the final resolution” of its discussions with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, and could not “reasonably estimate our related loss contingency” at this time.

The disclosure and resulting uncertainty mark a likely new setback for Wells Fargo, which has struggled to regain investor trust following a scandal involving an estimated 3.5 million accounts that may not have been authorized by customers. The consumer bureau, Office of the Comptroller of the Currency and Los Angeles legal officials hit the bank was hit with $185 million in penalties for that episode.

If levied, a collective $1 billion penalty by the two regulators would be the highest-ever fine imposed by the consumer bureau. It could reduce Wells Fargo’s first-quarter profit by approximately 20%, Kyle Sanders, an Edward Jones financial analyst, wrote in a research note issued Friday.

Wells Fargo (WFC) shares were down 3.2% at $51 in late morning trading.

The bank previously disclosed the issues under discussion with the regulators. They include extra fees Wells Fargo charged some customers to extend interest rate locks on mortgages because of delays that were caused by the bank, not the clients.

Wells Fargo said in October that it would issue refunds to customers who paid fees to extend mortgage rate locks between Sept. 16, 2013, through Feb. 28, 2017, but “who believe they shouldn’t have paid those fees.”

Additionally, the bank announced in July that it would give refunds to more than 570,000 auto loan customers who had been charged for auto insurance without their knowledge, even though most already had insurance coverage of their own.

Wells Fargo’s statement said the talks with federal regulators have also focused on the bank’s overall “compliance risk management program.”

CLOSEWells Fargo faces $1B fine from federal regulators over mortgage, auto loan abuses

Wells Fargo’s fake account scandal started last year. Angeli Kakade (@angelikakade) has the story. Buzz60

Citing “widespread consumer abuses and compliance breakdowns,” the Federal Reserve, one of the bank’s other regulators, imposed indefinite restrictions on Wells Fargo’s growth and pushed for a shakeup in its board of directors. Wells Fargo accepted the sanctions and said they could reduce its profits by as much as $400 million this year.

For the January-March quarter, Wells Fargo reported net income of $5.9 billion, or $1.12 per share. Wall Street analysts surveyed by S&P Capital IQ had forecast $1.11 per share.

The bank also reported revenue of $21.9 billion, topping the $21.7 billion forecast from the analyst survey.

Sanders estimated a potential $1 billion penalty could lower Wells Fargo’s first-quarter earnings per share to nearly 91 cents.

During a conference call with investors and Wall Street analysts, Wells Fargo CEO Tim Sloan outlined the bank’s effort to restore investor confidence and improve customer services. He said the bank had made progress but faces challenges ahead.

“We’ve certainly had a very thorough look into every nook and cranny of the company,” said Sloan, when asked if potential new regulatory problems could emerge. “In terms of declaring victory and walking ahead, we’re not at that spot right now.”

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc

 

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