The scandal ridden U.S. banking giant, Wells Fargo & CompanyWFC faces another blow following exposure of the fraudulent sales scandal, this time striking its retail banking customer activity in October. The bank witnessed a year-over-year plunge of 44% in new account openings, along with a sequential fall of 27%.
The decline was chiefly due to the full-month impact of customers' reaction to the sales malpractices settlement announced on Sep 8, 2016, and lower marketing activities. In addition, customer-initiated account closures rose modestly by 3%, both from the prior year and quarter base. Also, the bank noted that survey results of customers' satisfaction with their most recent visit were 73.9%, down from 77.4% in Oct 2015.
Conversely, average consumer and small business deposit balances were up 8% from the Oct 2015 figure and were in line sequentially. Further, the number of online and mobile transactions on the bank's digital distribution channels rose 7% year over year. This resulted in a yearly decline of 10% in customer interactions with the bank tellers.
Per head of Wells Fargo's community banking business, Mary Mack, "We recognize we have work to do and we are focused on strengthening our relationships with existing customers and building new ones with potential customers." In addition, for comparative purposes, it is important to note that Oct 2016 had one fewer business day than both Sep 2016 and Oct 2015, Mack stated.
In Sep 2016, Wells Fargo faced a combined fine of $190 million from the California and Federal regulators. The bank's employees were alleged of illegally opening nearly 1.5 million deposit accounts that were not authorized by the customers. This led to hurting customers' interests, as they were sometimes charged for insufficient funds or overdraft fees, because the money was not in their original accounts. (Read More: Wells Fargo Fined $190M for Illegal Sales Practices )
The allegation led to many setbacks involving the bank's shattered image, numerous lawsuits, triggered federal and state investigations, Congressional hearings and the bank's former CEO - John Stumpf - losing his job. (Read: Will Tim Sloan be the Turnaround CEO for Wells Fargo? ). Further, in Oct 2016, the state of Illinois suspended $30 billion in investment activity with Wells Fargo for "predatory and illegal banking practices." (Read More: Wells Fargo Loses Illinois State Business in Latest Setback )
However, post-scandal, the bank undertook many steps to restore its reputation. The bank initiated an internal probe and hired a consultant to review sales practices. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned.
While the current crisis at Wells Fargo will take some time to alleviate, we believe that continued growth in loans and deposits, and expansion moves should support its growth profile going forward.
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 .
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