Bank reputations were on the rise. After the financial crisis of 2007-08, led by making mortgage loans to people that had little resources to repay them, banks were climbing from the reputational abyss.
Then came September 8th, when the Consumer Financial Protection Bureau (CFPB), and the Office of the Comptroller of the Currency (OCC) jointly announced the issuance of a consent order to Wells Fargo that included $185 million in fines due to the widespread, illegal practice of secretly opening up customer accounts without the customers' consent. Fifty million of the settlement was to go to the City and County of Los Angeles, which brought a lawsuit against the bank a year ago for the same charge. For further discussion among my colleagues on this subject, click here for our podcast.
And the stench of that little news item is likely to sully the reputations of financial institutions across the country. Don't believe me? How many subprime mortgages did you make where your customers had little hope of repaying? And did the bursting of the housing bubble hurt your bank's reputation?
Wells Fargo is so large, that many people view them as a proxy for the whole banking industry. Much like Apple or Samsung might be viewed as a proxy for the whole smart phone industry.
What does reputation get you? For Wells Fargo, it gets you $32.9 billion. Or lost them $32.9 billion. That is the decline in market value they suffered from August 31st to this writing. Thirteen percent of their market value, vanished like a puff of smoke in the wind.
According to Cutting Edge PR, sources of information that impact influencers (CEOs, senior business execs, analysts, institutional investors, etc.) are as follows:
Source of Information Proportion
Personal experience 64%
Major business magazines 37%
Articles in national newspapers 35%
Word of mouth 31%
Articles in trade journals 30%
Television news 14%
Articles in local newspapers 14%
Television current affairs programs 13%
Is Wells Fargo lighting up the newswire? Yes. Will commentators start dropping Wells Fargo from the discussion and start generalizing that this is typical bank practices? I have little doubt.
I said it before in a previous post on branch incentives, and I'll say it again. Bankers should hold business line managers accountable for the service levels, profitability, and profit trends of their business units. When you begin to drill down and start measuring widgets, employees will gravitate to finding widgets. Which is exactly what Wells Fargo did.
And if you think this culture started recently. Guess again. Google the much lionized former Norwest and Wells Fargo CEO Dick Kovacevich that touted the "eight is great" cross-sell ratio. Stumpf has worked for Norwest/Wells for thirty four years.
I guess eight isn't so great after all.
And the Schleprock cloud hovers above us all.
Thank you Mr. Stumpf.