Wells Fargo has agreed to pay $1 billion to settle a class-action lawsuit alleging that it misled shareholders about its recovery from a series of customer service scandals. The proposed settlement is subject to approval by a judge and has been suggested by a mediator. Wells Fargo has been operating under consent orders from several financial regulators since 2018, which requires it to improve its governance and oversight. The Federal Reserve has also imposed an asset cap on the bank that can restrict its ability to compete with larger rivals, such as Bank of America, Citigroup, and JPMorgan Chase. Shareholders accused Wells Fargo of overstating its compliance with these consent orders, which resulted in a market value loss of over $54 billion between 2018 and 2020.
In response to the lawsuit, Wells Fargo denied any wrongdoing but chose to settle to eliminate the burden and cost of litigation. Plaintiffs’ lawyers may seek legal fees up to 19% of the settlement fund. The bank has paid or set aside billions of dollars to resolve regulatory probes and litigation related to its business practices since 2016. These included opening millions of unauthorized accounts and charging auto insurance to hundreds of thousands of customers who did not need it.
Wells Fargo’s CEO, Charlie Scharf, admitted that restoring the bank’s reputation has taken longer than he expected since taking over in 2019. He wrote to shareholders on March 3 that when he arrived, the bank did not have the appropriate culture, effective processes, or management oversight to fix weaknesses in a timely manner. However, he also stated that the bank now approaches these issues differently.
The settlement is the latest legal setback for Wells Fargo, which is struggling to regain its reputation after a series of scandals damaged its image. The bank has also faced criticism for its handling of the COVID-19 pandemic, including accusations of not doing enough to help small businesses and borrowers. Wells Fargo’s recent financial results have been positive, with its first-quarter profits exceeding analysts’ expectations. However, the bank’s share price has struggled to recover from the damage caused by the scandals, and it remains to be seen whether this settlement will help to rebuild investors’ confidence in the bank.