Wells Fargo (NYSE:WFC) has agreed to pay shareholders $1 billion to settle a new class action lawsuit that accused the bank of overstating its progress in cleaning up after its 2016 fake-accounts scandal, per WSJ.
The bank’s shareholders alleged Wells Fargo and its past leadership misled them about how swiftly they were fixing the governance issues and risk-management systems that failed to prevent the bank from opening up perhaps millions of phony accounts.
After the 2016 scandal led to a series of regulatory rebukes, the bank moved slower to address the problems than it suggested publicly, the plaintiffs alleged.
When the sluggish pace became clear in 2020, the plaintiffs said, stock-price declines cost shareholders, including mutual funds and pension funds.
The preliminary settlement, outlined in a court filing Monday night, still must be approved in the coming months.
It would likely be the 17th-largest settlement in a class action brought by shareholders, according to the filing.
“Wells Fargo betrayed the trust of Rhode Island pensioners and now is rightly facing consequences because of that,” James A. Diossa, general treasurer of Rhode Island, whose pension fund is a co-lead plaintiff in the case, said in a statement.
Here are the latest banking news and updates.
Latest Wells Fargo Bank News
It seems shareholders in just about almost every company out in the market has begun to sue companies for some sort of fraud or unethical practices.
A spokeswoman for the bank said the agreement resolves a lawsuit “involving the company and several former executives and a director, who have not been with the company for several years. While we disagree with the allegations in this case, we are pleased to have resolved this matter.”
Wells Fargo is still trying to get its house in order and appease regulators. The bank has been operating under a growth cap imposed by the Federal Reserve more than five years ago because it didn’t have adequate governance and controls.
The fake-accounts scandal invited intense regulatory scrutiny that revealed wide-ranging problems with the bank’s systems for overseeing risk. Wells Fargo is still rebuilding them to make sure it has proper oversight to prevent customers from being harmed when they are doing business with the bank.
Wells Fargo in recent months has set aside billions of additional dollars to resolve litigation and regulatory matters, and to compensate customers for wrongdoing tied to its scandals, per WSJ.
In December, the bank entered into a $3.7 billion agreement with the Consumer Financial Protection Bureau to resolve allegations that its actions harmed more than 16 million people with deposit accounts, auto loans and mortgages.
It paid $300 million in February to settle a class action claiming it improperly charged hundreds of thousands of customers for unneeded auto insurance.
Wells Fargo stock is currently down nearly -8% this year-to-date.
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Other Banking News
A new study shows that nearly 190 banks are on the verge of collapsing.
Several reports throughout the year have highlighted a crisis amongst the banking system.
After the collapse of Silicon Valley Bank and Signature Bank in March and First Republic Bank in April, a study on the fragility of the U.S. banking system found that 183 more banks are at risk of failure even if only half their uninsured depositors—those with deposits greater than $250,000—decide to withdraw their funds, USA Today reported.
“The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” economists wrote in a recent paper published on the Social Science Research Network.
“So, our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”
Regional banks are failing because the Federal Reserve’s aggressive interest rate hikes to clamp down on inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities, reported USA Today.
“If a ‘confidence crisis’ can happen to First Republic, it can happen to any bank in this country,” says Jake Dollarhide, Chief Executive Officer of Longbow Asset Management.
A run on these banks could pose a risk to even insured depositors—those with $250,000 or less in the bank—as the FDIC’s deposit insurance fund starts incurring losses, the economists wrote.
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