$1b fine for loan abuse

TWO US regulators have proposed Wells Fargo & Co pay $1 billion in penalties to resolve probes into auto insurance and mortgage lending abuses at the third largest US bank, overshadowing its first quarter results.

The San Francisco-based lender, which reported a quarterly profit, said it may have to restate results to reflect the final settlement. The proposed penalties were reported earlier this week by Reuters.

Analysts said that while the $1 billion penalty would not make a significant dent to its balance sheet, it may take the bank some time to repair the damage to its reputation.

Shares of the bank fell 3.4 per cent to $50.89.

“Operationally, Wells Fargo can recover, but reputationally and how a billion dollars will weigh on them – only time can tell,” said Art Hogan, chief market strategist at B. Riley in Boston.

“Companies have come back from worse than this but right now they’re still in the eye of the storm,” he added.

The bank, still smarting from a prolonged sales scandal in its retail banking business, found inconsistencies at its auto lending and mortgage in the summer of 2017 – leading to further probes by regulators.

To appease investors and regulators, the bank overhauled its operational structure, shook up its board and hired a new compliance officer.

But this failed to impress the US Federal Reserve, which imposed restrictions in February on the bank’s growth, forbidding it to expand its balance sheet beyond 2017 levels until it makes internal changes that addressed risk management.

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