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Fed restricts Wells Fargo assets

LAST STATEMENT:US Federal Reserve Chair Janet Yellen announced new penalties on the bank until it can prove its internal controls are up to standard


A man walks past a Wells Fargo branch in Philadelphia on Dec. 19, 2012.

Photo: AP

The US Federal Reserve is imposing more penalties on Wells Fargo & Co, freezing the bank’s growth until it can prove it has improved its internal controls. In addition, the bank has agreed to replace four board members.

It is the latest blow against the San Francisco bank that has had its reputation tarnished by revelations it opened phony customer accounts and sold auto insurance to customers who did not need it.

The new penalties were announced late on Friday on Fed Chair Janet Yellen’s last day at the central bank.

“We cannot tolerate pervasive and persistent misconduct at any bank,” Yellen said in a statement. “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”

The Fed said it is restricting the bank’s assets to the level where they stood at the end of last year until it can demonstrate that it has improved its internal controls.

The announcement came after the close of trading on Wall Street on Friday. Wells Fargo’s stock fell more than 6 percent in after-hours trading.

“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” CEO Timothy Sloan said.

Wells Fargo said it is confident it can satisfy the Fed’s requirements and reiterated that it remains “open for business.”

The bank said that it would continue to meet customer’s financial needs, including saving, borrowing and investing.

It said it has the flexibility on its balance sheet to pull back from certain activities to meet the Fed’s growth limits, although its exact steps have not been determined.

Sloan also emphasized that the order is related to prior issues, not any new matters.

The company has agreed to replace three directors by April and another one by year-end. It did not specify which board members would be affected.

The Fed’s new order marked the latest chapter in a series of scandals that have rocked the bank in the past few years.

Wells Fargo has said that employees opened more than 3 million fake accounts in order to meet sales quotas. It ended up paying US$185 million to regulators and settled a class-action suit for US$142 million.

It has also said that it signed up hundreds of thousands of auto loan customers for auto insurance they did not need. Some of those customers had their cars repossessed because they could not afford both the auto loan and insurance payments.

Wells Fargo also offered refunds to customers last year after acknowledging that its mortgage bankers unfairly charged them fees to lock in interest rates on mortgages.

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