The SUBText: Sept. 22, 2016

Posted on Posted in The SUBtext

We have an interesting situation this week- Wells Fargo (our custodian of assets and a core holding, NYSE:WFC) has taken headlines screaming “FRAUD! “ Of course, this generated calls- “Why aren’t you selling it? Were they stealing from accounts?”

OK, let’s open a window here: For openers, Wells Fargo Bank and Wells Fargo brokerage are different entities much like Walmart and Sam’s Club. The events in the news occurred in the bank.

Anyhow, bank employees generally get paid to open accounts- that’s their measure of performance. So, if a new customer walks in and says, “I have $100 and want a checking account.”, a bank employee might say “Our free checking accounts also come with a free savings account- Let’s put $95 in checking and $5 in savings. You can always take it out if you want. Also, you get a free debit card and online access, even if you don’t have a computer.”

In this case, our hero gets credit for opening four accounts/products, even though it’s really one.

Wells fired around 5200 employees over this, over a five-year period. For context, they employ about 250,000 people.

Is this dishonest? Unethical? Deceptive? Yes, yup, and sure. But, did it cost customers money? Well, in less than 5% of cases. This is absolutely a problem, but much more for Wells than for their customers.

While it raises our eyebrow as stockholders, we’re not prepared to jettison the nation’s largest bank over it immediately. More to follow.

As always, we’re here all day for your questions.

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