Wells Fargo Struggling in Aftermath of Fraud Scandal

Wells Fargo's Unethical Practices

Wells Fargo, one of the country's oldest banks, faced a financial crisis in September 2016 as it was disclosed that the corporation would be paying over $185 million in penalties to authorities. During a prior investigation, it was determined that Wells Fargo workers opened more than $2 million in deposits and credit accounts in customers' names without their permission (Corkery, 2017). The CEO and chairman of the corporation were also criticized for the violation of trust by the 5,000 employees who engaged in unethical account opening. Employees were seeking to exceed their sales quotas by earning incentives or retaining their jobs, which led to the unethical behavior.

The Issue of Cross-Selling

Cross-selling has been one of the main ways through which banks are forcing customers into opening unnecessary bank accounts. Normally, when a customer walks into or calls a bank, the bank representatives usually suggest that they consider opening a new account or a different product. The cross-selling is a good business strategy but only works well if done carefully and on a customized basis. Banks are struggling to increase their profits during the low-interest rates periods. They aim to increase these profits through increased loans to creditworthy customers. However, as the worth credit customers are few, banks such as Wells Fargo were looking into increasing profits through selling more products. The management hence had put a bizarrely high target that prompted unethical employees to start faking accounts. The clients in Wells Fargo had no idea that accounts were being opened in their names.

Management Response and Consequences

When the scandal broke out, the management of Wells Fargo denied any involvement in the employee's unethical behaviors. The CEO of the company was the first to point fingers at the employees, saying it was unethical and that action would be taken towards those involved. About 5,300 employees were fired in the past years due to the shady behavior (Egan, 2016). The company’s management made a statement whereby they apologized for any instance in which customers received products they did not request. The bank also made a memo stating that when it makes a mistake, it is open about it and takes full responsibility and action. Though the management did not comment on how to uncover the matter, it stated that investigations were underway and the bank paid the penalties as required by the regulator. According to John Stumpf, the bank eliminated the goals on product sales, a move towards damage control action as it looks forward to gaining customer’s confidence.

Financial Impact and Customer Confidence

In about three months, ending 30th September, Wells Fargo net income fell to 5.6% billion from about $5.8 billion, which translates to a $1.03 per share drop from $1.05 per share early in 2016. The share price was expected to continue dropping in the coming years as the company worked towards regaining customers’ confidence. The third-quarter profits of the bank community division, which includes the unit responsible for the sales issue, fell by 9% from $3.23 billion early in 2016. New customers were refraining from opening accounts with the bank, and the openings of consumer checking accounts fell by 30% in August, and they were 25% lower than earlier in 2016. The applications for credit cards also fell largely.

Impact and Recommendations

Wells Fargo faced the unethical issue, which led to a decrease in income, drop in share price, and decline in new openings. The penalties also caused the financial crisis that the company had to pay, which also reduced its profits. The issue occurred at a time of low-interest rates when banks are struggling to maintain their profits. Though the scandal did not lead to the closure of the bank, several branches were closed, and a large number of employees laid off. The company has lost customer’s confidence, and its reputation has been ruined. Wells Fargo, however, could have acted on the issue earlier to avoid the heavy financial crisis. Had the bank recognized the issue when it was first reported, it could have avoided the creation of more accounts, which would have avoided such a huge loss and ruin of reputation (Ochs, 2016). Though the management responded more to the issue, it would have helped if they responded sooner and did more.


The wells’ managers were blaming the employees while they held themselves blameless for what occurred in the company. The workers also blame the management for the unrealistic goals that were set. The best way for Well Fargo and other companies to avoid such behaviors is to first set up realistic goals. According to the employees at the bank, they were forced into the unscrupulous methods by the high pressure to hit the unrealistic goals. Their continuity at the bank depended on hitting the said goals. Having unrealistic goals as a business strategy made the company vulnerable to corruption. Secondly, the bank did not involve the employees in setting the goals. For the employees to feel the set goals as meaningful, they should be involved in setting those goals. Lastly, companies should ensure that the goals given to employees are helping drive the company’s mission.


Corkery, M. (2017, January 13). Wells Fargo Struggling in Aftermath of Fraud Scandal. Retrieved from https://www.nytimes.com/2017/01/13/business/dealbook/wells-fargo-earnings-report.html

Egan, M. (2016, September 8). 5,300 Wells Fargo employees fired over 2 million phony accounts. Retrieved from http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/index.html

Ochs, S. M. (2016). The Leadership Blind Spots at Wells Fargo. Harvard Business

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