A phantom account scandal at Wells Fargo has put the U.S. bank's disclosure policies under a harsh spotlight. Fred Katayama reports.
Investors are fuming that they were kept in the dark for years about Wells Fargo's sales abuses, despite the fact that the company knew about them as far back as 2011. Wells Fargo has lost about $19 billion in market value since the widespread practices came to light when the regulators fined the company $190 million. The bank earned $23 billion last year. The regulators also released documents detailing the way some of the bank's employees went about meeting aggressive sales quotas set by their bosses. In total: the scandal involved two million sham accounts - many opened without customers knowledge - and 5,300 now fired employees Wells Fargo has long been thought of as the best cross-seller in the industry, but now that perception has backfired. Reuters Dan Freed has been covering the story. (SOUNDBITE) DAN FREED, REPORTER, REUTERS, (ENGLISH) SAYING: "People are really just dumbfounded. People who have been following the company for years, and admiring it, analysts who have been recommending it, investors who have owned the stock, and just forgotten about it, because they had so much confidence in the way the company is managed, are still scratching their heads trying to understand what happened. How a bank can open 1.5 million checking accounts, half a million in credit and debit card accounts, fraudulently, and not have senior management find out about it." Analysts are baffled by the scope of the abuses. Dick Bove, vice president of equity research at Rafferty Capital Markets. (SOUNDBITE) RICHARD X. BOVE, VICE PRESIDENT, EQUITY RESEARCH, RAFFERTY CAPITAL MARKETS, (ENGLISH) SAYING: "Where was human resources in terms of hiring these people, and monitoring what they were doing? Where was the underwriting department in terms of allowing 665,000 credit cards be issued without underwriting? Where were the controls that should be in place concerning opening 1.5 million checking accounts and not knowing who they're associated with? And, finally, when is the possibility that this lack of control is existing in other areas of the company?" Wells Fargo's spokesman Mark Folk said the bank did not consider the matter to be material enough to disclose to investors ahead of the settlement.