It seems that the scandal that has shaken the mega-bank is still not done in denting more of Wells Fargo’s condition.
The phony account scandal was alleged to have occurred between 2011 and 2015.
In attempts to limit the consequences from the scandal, CEO John Stumpf was forced to resign after already agreeing to surrender more than $40 million in unvested stock. Now the bank, headed by Tim Sloan, is striving to prove to investors and consumers that it is reliable.
However, a recent study was released, revealing that Wells Fargo may be losing as much as $8 billion in revenue and almost half of its retail customers have walked out the door.
Drops in revenue, deposits
When news of the fake account scandal first broke, Wells Fargo, analysts, and investors assumed it would not affect earnings.
However, as the uproar about the opening of an estimated 2 million deposit and credit card accounts without consumer knowledge at Wells Fargo continued to escalate, its reputation started to crash. Wells Fargo clients began jumping off the wagon.
This event resulted to a possible loss of as much as $212 billion in deposits and $8 billion in revenue over the next year and a half, based on a study conducted by cg42, a management consulting firm. These numbers are significant declines even for the US second biggest bank by market value.
“The fallout from Wells Fargo’s fraudulent sales practices has been significant: the scandal has been playing out on the news for weeks, the bank has been fined millions of dollars, and thousands of employees—including its CEO—have lost their jobs,” researchers at cg42 wrote in the study, which was published on Monday.
“But as our study reveals, the full financial impact of the scandal is yet to be felt... the fallout from the scandal will impact the bank’s bottom line for years to come.”
The loss would indicate a reduction of 17% in deposits, and a 9% decrease in comparison to last year’s revenue. The bank’s deposits resulted to a $1.28 billion through the end of June, and revenue of $85.1 billion for 2015.
In the most recent quarter, Wells Fargo posted that sales had climbed 2% to $22.3 billion compared to a year earlier, while deposits also grew by $30.4 billion compared to the prior quarter. This went to show that the scandal had little to no effect on the bank’s earnings. Profits, however, dipped by 2% to $5.6 billion compared to 2015. New account openings also slowed.
The firm conducted the study between October 18 to October 20, surveying 1,000 Wells Fargo primary clients, and 500 customers from other big retail banks including Bank of America and JP Morgan Chase.
Retail customer base
The cg42 study also indicated that the scandal has already had 44% or almost half of the bank’s existing retail clients have left the bank. Additionally, some 30% of Wells Fargo’s customers may actively explore other choices, and 14% of the customers planning to leave and bank elsewhere.
While just 3% of Wells Fargo’s customers were directly affected by the scandal, public opinion concerning the mega-bank has plummeted dramatically. The drops could also be much deeper, since the survey has not included small business accounts. The scandal affected an estimated number of 10,000 small businesses.
These figures would be a major hit to Wells Fargo's retail customer base, although righting the bank and proving its trustworthiness proves to be a bigger problem than the loss of customers for the new CEO. Wells Fargo was dubbed recently as a “criminal enterprise” by Congress members. Steps have been taken by the bank to contain the fallout from the scandal, such as giving back money to affected customers. The bank even released a national ad campaign on Monday, plugging its efforts to make things right with customers.
“We have provided full refunds to customers we have already identified, and we're broadening our scope of work to find customers we may have missed,” a Wells Fargo spokesman stated. “We are also contacting each of our impacted deposit and credit card customers to ensure they still want and need their products.”
This is FSM News bringing you the freshest and biggest market updates. We provide in-depth analysis and detailed news stories to keep traders constantly informed in the fast-paced industry that we live in. FSMNews produces new articles and analyses every day, so subscribe to our newsletter today!