Wells Fargo Case Study

Executive Summary

While Wells Fargo’s close competitors JPMorgan and Citi continued to do well in the first quarter of 2017, the scandal erupting from sham account creation continues to disrupt Wells Fargo’s business. Additionally, expenses rose, owing to increased legal fees and measures that had to be taken for damage control. In total, there was a 1% decline in net incomes and revenues from the same time last year. Moreover, being more retail-oriented, it is not being able to take advantage from growth in US investment banking that has boosted JPMorgan and Citi (The Market Mogul, 2017).

In this paper, I would suggest to Wells Fargo to change its audit firm and form a transformation team with new people from outside the company who will work on transforming the company culture. Changes in audit firms will bring wholesale changes in accounting practices as seen amongst British banks (Reuters, 2017).

Wells Fargo Scandal: A Summary

An aggressive sales culture led representatives at Wells Fargo’s to the opening of two million unauthorized credit card and checking accounts without client permission. This was the primary driver that culminated in a massive scandal that has rocked the bank. In the aftermath, Wells Fargo pushed cases into private arbitration and killed lawsuits. As is generally the case in scenarios like this, customers felt like the corporation was treated preferentially and its public accountability was lessened. This persistence of mandatory arbitration further aggravated the problem, raising accusations and slow restoration of consumer confidence (Lieber, 2017). Credit card and checking account applications have declined and remained slow. Within a year, teller transactions dipped by 6% while customer interactions with the bankers fell 14%. However, the most critical factor for survival for a bank, the payments on loans, is still intact (Corkery, 2017).

At the root cause of the aggressive drive was an internal initiative to service eight products per customer, launched by the outgoing CEO John Stumpf as the ‘Go for Gr8’ initiative (Perez, 2014).

Personal Position and Recommendations

A. Britain has pushed its banks to change auditors every 10 years since the 2008 financial crisis. This saw major change of guards at Barclays and HSBC. Barclays is switching to KPMG after being audited for 120 years by PwC while HSBC has gone the other direction, switching to PwC from KPMG (Reuters, 2017). Studies have shown that especially with large public companies, audit failures happen at a higher rate during the first three years of an audit commitment. This indicates that the first three years of the commitment for the external auditor is a considerable learning curve (Bostron - Financial Management, News & Announcements , 2015). My argument is that the learning curve will be mutually beneficial and Wells Fargo can clean up its accounting processes from within.