Deficiencies Found

The “deficiencies” uncovered by the U.S. Consumer Financial Protection Bureau and other government investigators show that the bank’s “vaunted cross-selling capabilities were inflated,” the credit grader said in a report. The bank encouraged “pervasive inappropriate practices” and managers didn’t provide oversight of employees, Moody’s said. Results of examinations by the CFPB and the Office of the Comptroller of the Currency are credit negatives, according to the report.

“The regulators’ findings are consequential for a bank such as Wells Fargo, which historically has had strong customer satisfaction scores and a reputation for sound risk management,” Moody’s analyst Allen Tischler wrote. “We do expect some immediate damage to Wells Fargo’s reputation from this embarrassing episode.”

5,300 Fired

The CFPB said last week that bank employees secretly opened the unauthorized accounts to hit sales targets and receive bonuses. The company agreed to resolve the allegations without admitting or denying wrongdoing. The lender said it fired 5,300 employees over the matter.

Moody’s said it expects the bank’s risk management and sales oversight will “ultimately be strengthened” by the regulators’ findings. It didn’t announce any ratings changes. Moody’s has an A2 rating on the bank’s long-term debt with a stable outlook.

Wells Fargo has come under fire from politicians since the fines were announced Thursday. Presidential candidate Hillary Clinton on Friday praised the consumer watchdog for its work. She said that Donald Trump, her Republican rival, wants to dismantle the CFPB.

The fines “probably should lead to a pay claw-back” from Carrie Tolstedt, the Wells Fargo executive who ran community banking until the company announced her retirement in July, Mike Mayo, an analyst at CLSA Ltd., wrote in a note to clients Monday.

“These issues should have been caught sooner and dealt with more forcefully,” he wrote.

Tolstedt has unvested stock awards that would be worth about $17.8 million if the company hits certain financial targets. She’ll also get $3.07 million in retirement benefits, according to data compiled by Bloomberg. That doesn’t include previously vested stock options that would be worth $38.5 million if exercised at Monday’s stock-market close. Tolstedt, 56, also holds about $53 million of shares amassed during her 27-year career.