Wells Fargo reveals it overcharged wealth management clients

Four directors to leave bank as scandals at its other units receive Capitol Hill’s ire

Alistair Gray in New York

Wells said the disclosures 'reflect our continued commitment to transparency' © AP

Wells Fargo’s woes deepened on Thursday as the bank acknowledged it had overcharged customers at its wealth business, while the scandals that have already hit its other divisions triggered new boardroom departures and fresh criticism on Capitol Hill.

The third-biggest US bank by assets has been hit by damaging revelations over the past 18 months about its treatment of customers in a wide range of areas from bank accounts to car loans.

Now Wells has divulged more regulatory problems, this time at its investment and wealth management business, which had so far appeared to avoid the kind of troubles elsewhere at the group.

Federal authorities are examining possible “inappropriate referrals or recommendations” at the division, which has about 35,000 employees and $1.9tn in assets under management. The bank also said “there have been instances of incorrect fees being applied” and it was conducting an internal review.

The latest disclosures came as Jay Powell, the new Fed chairman, told lawmakers in Washington on Thursday that the central bank would “not lightly lift” regulatory sanctions against it, including a cap on its expansion.

Under questioning from Senator Elizabeth Warren, a persistent critic of the bank, Mr Powell made clear that he was committed to following through on planned restrictions the Fed laid down last month.

On Janet Yellen’s final working day as chair, the central bank said it would bar Wells from increasing its total asset size — the first time the regulator has taken such a step — until the bank had improved its governance and controls.

“We’ll have to be assured that the company has made these really significant measures [to address the problems], and suffered a significant period of a growth cap,” said Mr Powell. “We will not lightly lift it.”

Regulators have also pushed Wells to make further changes to its board, and on Thursday the bank also disclosed the identities of the directors who are leaving.

John Chen, Lloyd Dean and Enrique Hernandez, directors since the mid 2000s, will retire along with Federico Peña, a former US energy and transport secretary who has held his seat since 2011.

All four will go at the annual meeting in the spring, a faster timeframe than originally planned. A significant minority of Wells shareholders — almost half in the case of Messrs Hernandez and Peña — had voted against their re-elections at the meeting last year.

In its annual filing with the Securities and Exchange Commission, the bank said its review into the wealth management business was in its “preliminary” stages. Areas of focus included pension schemes and alternative investments.

Wells would not say how many customers had been affected, explain what kind of fees had been incorrectly applied nor clarify language used in the filing, which cited “incorrect set-up and maintenance”.

In a statement, the bank said that the disclosures about its wealth business “reflect our continued commitment to transparency, even when all of the information or the final outcome of a matter may not be known yet”.

The bank added that it had been “focused on many of the same issues cited by the Federal Reserve”. Betsy Duke, chairwoman, thanked the outgoing directors “for their many contributions and service”.

“We respect their decisions to retire,” she added.

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