Banking giant Wells Fargo is making shareholders and investors very nervous as its legal bills keep getting more and more exorbitant. The American bank is keeping law firms quite busy as it faces multiple legal challenges ranging from consumer fraud to improper mortgage lending practices, and the total cost of legal representation, settlements, court fees and fines could total more than $3.3 billion.
In a recent financial filing reported by Bloomberg, Wells Fargo indicated that it allocated $1 billion more than the previous quarter to its legal defense fund. The bank’s Chief Financial Officer has hinted that Wells Fargo will likely settle with financial regulators and aggrieved mortgage borrowers in the next few months, but there have been no indications of how much the settlement amounts may be. The bank needs to make strong investments in legal operations now for the purpose of keeping settlements as low as possible; this is a case in which a single legal misstep could put the bank out of business.
In July 2017, Wells Fargo estimated that it would have to pay $80 million to aggrieved account holders who were charged for auto insurance coverage that they never requested; in the financial world, this unethical practice is known as “slamming.” A November filing by Wells Fargo indicates that the bank underestimated this loss considerably since it will now have to pay $150 million; in general, each financial report issued by the bank this year has seen an increase of legal fees, a situation that shareholders are not happy with.
An interesting aspect of the various cases Wells Fargo is currently facing is that former executives and directors are being held personally accountable. Whereas in the past a simple dismissal of executive board members was the typical corporate reaction to major scandals, a federal district judge in San Francisco overseeing the Wells Fargo case recently determined that claims against former bank directors should face legal scrutiny in certain circumstances.