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Wells Fargo Executives Enter Settlement Over Fake Accounts

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In a latest development to the Wells Fargo & Company ’s WFC fake account scandal, the bank has reached a $240 million settlement with the shareholders to resolve “shareholder derivative lawsuits”. However, the settlement still awaits a judge's approval.

The lawsuit was filed against current and former directors and officers of Wells Fargo, charging them of failure to detect and prevent employees from creating millions of unauthorized customer accounts.

Per a Reuters article, insurers for about 20 current and former Wells Fargo executives and directors, including CEO Tim Sloan and his predecessor John Stumpf, would pay the settlement amount to the bank.

The settlement relates to the revelation of a sales scam, wherein the bank’s employees allegedly opened millions of unauthorized accounts illegally to meet aggressive internal sales goals.

The news broke out in September 2016, post which the company was subjected to investigations of several departments and businesses. As a result, a cap on the company’s asset growth has been imposed by the authorities, which will remain in place until the bank is able to give a reasonable assurance to stay out of trouble. The revelation also led to several layoffs and restructuring of operations.

Prior to this settlement, Wells Fargo paid $65 million to the State of New York in October 2018 to resolve the New York Attorney General’s investigation. Further, in December, it entered into an agreement with all 50 state Attorneys General and the District of Columbia on this matter and paid $575 million.

Also, it received the final court approval for a $480 million settlement of a securities fraud lawsuit filed by shareholders over the scandal.

In its latest annual filing, Wells Fargo said that it is in “preliminary and/or exploratory resolution discussions” with the Department of Justice and the SEC. However, it does not guarantee the discussions to end successfully.

Also, the bank said that it expects costs to exceed legal reserves by as much as $2.7 billion. The figure reflects an increase of $500 million from its expectations three months earlier.

Another Wall Street biggie struggling with the legal matters — The Goldman Sachs Group GS — recently stated that expenses made on ongoing legal matters might be $1.9 billion above the aggregate reserves the company has kept for such purpose.

Our Take

Wells Fargo’s efforts to put behind past misdeeds bode well for the long term. It remains focused on attracting new customers and deepen relationships with customer-focused innovation, which might help boost its financials. Also, its impressive cost savings strategy might help it deal with the pressure on costs.

However, Wells Fargo still has a long list of pending legal cases and is under close supervision of the regulatory authorities.

Over the past six months, the Zacks Rank #3 (Hold) stock has declined 13.4%.

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M&T Bank Corporation MTB has long-term earnings growth rate of 13.2% and a Zacks Rank #2.

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