How much do corruption scandals actually hurt a company in the pocketbook, as in drop in profits? That question is often debated in the FCPA world as a stock dip when an FCPA investigation is eventually offset when the stock price rises. As counter-intuitive as it sounds, when a company settles an FCPA enforcement action, the stock price usually goes up because at least the costs are relatively well-known at that point.
Wells Fargo is still reeling from its fraudulent accounts and assorted other scandals. Reports indicate that the bank is still grappling with the regulatory, internal, and customer fallout from the ongoing scandals. Last fall, the bank had announced its profits had dropped some 18 percent in light of the bank’s announced reserve of $1bn for legal expenses. From the regulatory perspective (separate and apart from President Trump’s promise to punish the bank) the Office of the Comptroller of the Currency has warned it may institute a possible enforcement action over the fraudulent sales of insurance to over 500,000 Wells Fargo customers.
Financially, the bank is lagging behind other banks in growth and profitability. Wells Fargo is actually shrinking as well, as it “shuttered or consolidated 214 branches in 2017 and will pick up the pace, closing another 850 or so by the end of 2020.” The bottom line is that expenses are up and revenues are down, obviously never a good pairing. As for their customers, Wells Fargo is still struggling to regain the public’s trust after a series of embarrassing scandals emerged after the initial fraudulent account scandal became public and the bank’s tone-deaf response the public and in front of Congress.
Certainly, the company’s workforce is distracted by the ongoing scandals. There has not been a quantified report on the time cost to the bank for the lost man hours from working on issues arising from the scandal. Yet, it can only be high. Wells Fargo is one of the poster children over what can happen when compliance is not taken seriously or perhaps not at all in an organization.