foreign [Music] here's a comment that's been sticking with me and can you make a vid about Wells Fargo hasn't there been a scandal with them well yes there most definitely has been a scandal with them one that can potentially be relevant to all of our lives so I feel it's important for everyone to at least know a little bit about it that's my motivation here is simply put for years Wells Fargo employees created millions of unauthorized accounts on behalf of their customers and here's what I mean by that a person can have no interest in opening a credit card account with them they never authorized it they never contacted anyone about it they never wanted it yet someone from Wells Fargo would sign them up for a credit card they wouldn't even tell them they did it which of course is very illegal and it's almost unbelievable to me I say this may be relevant to you because Wells Fargo is one of the largest banks in the United States they're typically ranked by total assets and when we do that there's four banks in the country that stand out as being significantly larger than the rest currently Wells Fargo is the smallest of the big four but that still makes them seriously large they have 1.9 trillion dollars in assets and claim to serve one in three American households so today I want to talk about what was going on with the Scandal but first let's go all the way back to the beginning for a minute there's a man named Henry Wells and a man named William Fargo and a third man named John Butterfield all three of them were owners of separately competing Express companies on the east coast in the year 1850 the three of them figured that it would be a smart move to come together and dominate their industry on the East Coast that newly combined company was known as American Express two years later Wells and Fargo took notice of the California Gold Rush people were traveling out there the area was expanding and they identified San Francisco as a potential new market for their Express business now Butterfield and some of the other Executives over at American Express disagreed they felt that it would be too risky and too competitive so in a bold move Wells and Fargo came together to start a second very similar business on the west coast called Wells Fargo that's how they started and that's where they get the name from in the interest of time and simplicity I'm gonna skip ahead almost 150 years over that time they had grown consistently helped enlarge by a ton of Acquisitions others were doing it too and the whole industry was consolidating Norwest is the relevant one here they were a bank based in Minneapolis that was actively growing so much so that in 1998 they actually acquired Wells Fargo but chose to adopt the name Wells Fargo for the combined company I know that part gets confusing so let me emphasize it the Wells Fargo company that was started by Wells and Fargo in the 1850s was acquired by a different bank named Norwest so the company that we now know as Wells Fargo is actually Norwest but the original Wells Fargo was combined into it back in 1998. I realized this may only sound like a meaningless naming distinction but it does matter because the former head of the Norwest company Richard kavasovich became the head of the new Wells Fargo company and the next head of the company John stump who is most associated with the Scandal also came from Norwest when Richard cavazovich first took charge of Norwest back in 1993 his strategy was to put an emphasis on customer relationships which was actually a bit different from the direction of the industry over the next few years many of the other Banks valued speed and convenience ATMs and internet banking was on its way but Norwest preferred to build relationships with their customers by dealing with them on a personal level now his real motivation behind this strategy was cross-selling it was the idea that if they built a good relationship with the customer they'd be more likely to open more accounts with them an example would be if you're happy with your experience with Norwest as if pertains to your checking account you'd be more likely to use them when opening your savings account or retirement account or whatever else you need plus you have to consider the more accounts that you have with them the more likely you are to open more accounts with them in short they were less concerned with attracting new customers and more concerned with expanding the products that they sold to their existing customers since this leadership from Norwest came to be in charge of the new Wells Fargo as of 1998 the strategy carried over which I know it sounds like a positive potentially effective strategy but here's where things went wrong eventually The company took it too far when they became obsessed with selling multiple products to each customer it got to a point where they were putting unacceptable pressure on their employees to sell them they would provide performance-based incentives and generally High sales goals I don't claim to know what was happening at each store level but in some cases they would require hourly conferences with branches is concerning how their daily quotas were looking if employees weren't meeting them they would be forced to stay late or work weekends and if they still weren't performing they would be fired that's the general idea of the culture that the company created in fact if anyone watching this actually worked for Wells Fargo at the time I'd be very interested in hearing what you experienced and how it made you feel so now we have all these Wells Fargo employees that are incredibly motivated to open more customer accounts they're motivated by fear motivated by Money Motivated because they wanted to go home on time plus it's important to remember that there was a corporate culture created that seemed to Value new customer accounts more than the ethics involved in how they were created thought to have started around 2002 and Lasting until 2016 when it was all exposed many of these employees just started saying I cannot meet these unreasonable expectations so I'm going to have to cheat a little bit that's when the fraudulent account started and it was getting pretty bad too they would use the bank's database to find customers who had been pre-approved for a credit card and then just open a credit card for them that would Forge their signature and be careful to fill out their own contact information or give out fake emails on the paperwork so the customers wouldn't even find out it happened if the customer did find out about it they would cover it up by saying that it was a simple computer error or some other nonsense they were signing up homeless people for accounts having their own family sign up for them just a lot of unbelievable shadiness in 2017 Wells Fargo admitted to opening a possible 3.5 million fake accounts Which is far higher than initially believed but I have to admit it was producing results I mean a lot of it was phony and I have to think even many of those legitimate accounts that were forced upon the clients were in the end not necessary but it looked like they were doing well as of 2005 Wells Fargo has been led by John Stumpf as I said he was part of Norwest going back before Wells Fargo was in involved and when he took over he continued with this strategy maybe even intensified it as part of Wells Fargo's 2010 annual report he included a personally signed letter to the owners I want to read a couple sentences from that letter he says 13 years ago when I was head of community banking for Norwest Bank in Texas before Norwest acquired Wells Fargo our company set an ambitious goal to have our average banking household have eight products with us the letter includes figures of how they have been effective in increasing their products per customer at the time of the acquisition they were at 3.2 and by 2010 that was up to 6.1 remember their goal at the time was to get that number up to eight then later on he says I'm often asked why we set a cross-sell goal of eight the answer is it rhymed with great perhaps our new cheer should be let's go again for 10. Senator Elizabeth Warren was very aggressive in holding Wells Fargo in specifically John Stumpf responsible for the fraud I think she made a good point when she suggested that they were more concerned with their own sales goals than they were with providing the customer with the products that they needed and that's not because you ran the numbers and found that the average customer needed eight banking accounts those statements just don't feel very customer oriented here's the consequences immediately following the break of the Scandal Wells Fargo fired over 5 000 employees the CEO John strump had to appear before Congress and Elizabeth Warren in the end there was no jail time for him but he did get penalized he was removed from his CEO position about a month after everything came to light 41 million dollars in compensation was taken away and then there was another 17 million dollar fine in January of 2020 he also agreed to a lifetime ban from the banking industry as far as the various fines and fees and settlements resulting from the Scandal there's almost too many of them to keep track of but here's a few of the bigger ones that stand out in September of 2016 the world first learned about the Scandal when they were fined 185 million dollars from multiple sources in May of 2018 there was a 142 million dollar settlement resulting from a class-action lawsuit from the fraudulent account holders in December of 2018 they were fined 575 million dollars by every state that same month there was a 480 million dollar settlement with investors they sued claiming that all the fake accounts made it so that their financial reports were misrepresented like for instance an investor may have looked at those increasing products per customer and chose to invest based on that the biggest one was a three billion dollar settlement in February of 2020 with the justice department and the SEC I know that they seem like really big amounts and they are of course but not as big to a company like Wells Fargo with their 1.9 trillion dollars in total assets their net income is around 20 billion dollars a year so all of these payments really equate to just a few months of earnings what I view as a bigger consequence was given to them by the Federal Reserve responding to widespread consumer abuses and compliance breakdowns by Wells Fargo Federal Reserve restricts Wells growth until firm improves governance and controls basically saying they let some pretty terrible things happen so they can't grow anymore until they get their act together and again I realize it doesn't seem very harsh as saying you can't grow past the two trillion dollars you're already at but looking at it financially it has affected them historically they have grown that number almost every year and they have been stuck at that level since 2016 while the competitors around them have continued to grow but I would say that their biggest consequence is the loss of trust it's a bank and you have a lot of choices when it comes to that and I would think one of your bigger concerns when choosing one is how much you can trust them when something like this happens it just makes you second-guess things there were thousands if not millions of people that made a mistake in trusting them before now I'm not saying you should stay away from them but it is something that you should be aware of and consider in their defense following the Scandal they now say they no longer set sales goals for branch managers they made this commercial saying as such and as saying that you can trust them again Jon Stumpf is no longer part of the company and he has apologized and said he takes full responsibility so I guess just keep all this in mind when it comes to dealing with Wells Fargo let me know in the comments how is this Scandal affected your view of Wells Fargo I should make it clear that this is by far not the only Scandal or Shady thing in their history there's been multiple issues come to light since this one but I think this one is the biggest and the one that I felt is most important to focus on this really is a deep subject so any other thoughts you have about any of it leave them in the comments I'd like to hear what you have to say thank you for watching [Music] foreign [Music]