Tags: S&P | wells fargo | outlook | reputation

S&P Cuts Wells Fargo Outlook to Negative on Reputation Risk

S&P Cuts Wells Fargo Outlook to Negative on Reputation Risk

(Getty/Joe Raedle)

Wednesday, 19 October 2016 08:44 AM

Wells Fargo & Co.’s credit-rating outlook was changed to negative from stable by S&P Global Ratings on concern that fallout from the company’s retail-banking scandal is spreading outside the consumer division.

Reputation issues stemming from bank employees opening legions of accounts without customer authorization “have accelerated in recent weeks and have caused business risks to emerge that we believe may not be commensurate with the high ratings on the company,” S&P said Tuesday in a statement. The credit grader, which left the rating at A/A-1 for now, said Wells Fargo would face business challenges "for at least several months."

S&P said the replacement of former Chief Executive Officer John Stumpf last week and changes to the bank’s retail-banking model “could weigh on our view of the company’s business stability." The firm said new investigations by the bank and outsiders could reveal additional wrongdoing.

Mark Folk, a spokesman for the San Francisco-based bank, declined to comment on the ratings outlook.

Bogus Accounts

Wells Fargo is reeling after agreeing in September to pay $185 million -- an amount S&P said may not sufficiently capture the actual impact of the misconduct -- to resolve claims that employees opened bogus accounts for years to boost sales tallies. The exit of Stumpf, the bank’s leader since before the financial crisis, did little to quiet fervor from outraged politicians and customers. Chief Executive Officer Tim Sloan, who took the position Oct. 12, deferred most analyst queries last week about the abuses, citing investigations by the board.

S&P said the bank could face additional fines from legal and regulatory probes. While those penalties probably won’t be large compared to how much the bank earns, more reputational damage is likely and not reflected in the bank’s current rating, S&P said.

The damage has already spread beyond the bank’s consumer division to its business with state and local governments. On Monday, Massachusetts Treasurer Deborah Goldberg barred Wells Fargo for one year from its list of banks approved to underwrite bonds. Goldberg has also asked staff members to review contracts and investments with the bank.

Other Actions

Wells Fargo’s home state of California, which is among the biggest municipal debt issuers, plus Ohio and Illinois had earlier announced similar actions to punish the company. Local governments such as Chicago and Seattle have also severed some ties.

"Wells Fargo has treated their employees, their customers and the general public in a completely reprehensible fashion," Goldberg said Tuesday in an e-mailed statement.

"We value the commonwealth of Massachusetts’ business and will work to earn it back," Jessica Ong, a spokeswoman for Wells Fargo, said in an e-mailed statement. “We will continue to serve our Massachusetts customers and be the same, committed community partner in the state, where 1,300 of our team members live and work."

Sloan had pledged on Oct. 10 to make up all of the lost municipal customer business “and more.”

The bank, which is selling 10-year bonds, delayed pricing the securities before S&P’s announcement Tuesday. Wells Fargo told investors the postponement was because of pending news, without elaborating, people with knowledge of the matter said.

The notes, which were initially expected to be sold on Tuesday, may price on Wednesday, said the people, asking not to be identified because they didn’t have authorization to speak publicly.

 

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Wells Fargo & Co.’s credit-rating outlook was changed to negative from stable by S&P Global Ratings on concern that fallout from the company’s retail-banking scandal is spreading outside the consumer division.
S&P, wells fargo, outlook, reputation
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2016-44-19
Wednesday, 19 October 2016 08:44 AM
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