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Putting Wells Fargo's Fine Into Perspective

We don’t excuse the behavior, but we still think the bank has done well for shareholders and customers overall.

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After  Wells Fargo (WFC) announced more than 5,000 firings related to overly aggressive and occasionally fraudulent behavior by its employees, we took a deeper look at its relationship with its customers as we reassessed the company’s stewardship. Using data from the Consumer Financial Protection Bureau--the regulator responsible for $100 million of the total $185 million penalty--we established that Wells Fargo is not an outlier in terms of its customer relations. The CFPB database contains more than 10,000 customer complaints related to issues with Wells Fargo accounts and services. This represents only 9 complaints for every $1 billion of customer deposits held by the bank. For comparison, TCF Financial (TCB) recorded more than 50 customer complaints for every $1 billion of customer deposits, and complaint rates at large regional competitors like Regions Financial (RF), SunTrust (STI), and Citizens Financial (CFG) were more than 50% higher than those at Wells Fargo.

We also note that the firings, which occurred at numerous levels, represent just 2% of Wells Fargo’s total employees, and the company has already announced an end to the aggressive retail sales goals that created misaligned incentives. Problems associated with faulty incentives are well known in the business world--observers from Berkshire Hathaway’s Charlie Munger to professors at the Harvard Business School have commented on the subject. While this by no means excuses Wells Fargo’s behavior, it supports our thesis that the company’s culture and management have generally done quite well for both shareholders and customers over time.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.