If the adage about closed doors and opened windows ever applied to a bank — even on outlook alone — that bank might be Wells Fargo.

The San Francisco-based lender late last week was handed a fresh $250 million penalty from one regulator (door), then took a moment to acknowledge that another regulator had let a separate consent order against the bank expire (window). On the horizon loomed a trial starting Monday for three former Wells Fargo executives over their roles in the bank’s 2016 fake-accounts scandal.

The surprise blow, however — also Monday — may have come from Sen. Elizabeth Warren, D-MA, who asked the Federal Reserve, in a letter to Chairman Jerome Powell, to revoke Wells Fargo’s financial holding company license. Doing so would require the bank to separate its core banking activities — checking and savings accounts, lending and the like — from its financial markets divisions.

“Every single day that Wells Fargo continues to maintain these depository accounts is a day that millions of customers remain at risk of additional negligence and willful fraud,” Warren wrote. “The only way these consumers and their bank accounts can be kept safe is through another institution — one whose business model is not dependent on swindling customers for every last penny they can get. The Fed has the power to put consumers first, and it must use it.”

Powell is unlikely to take that tack, Jaret Seiberg, an analyst for Cowen Washington Research Group, told The New York Times. 

“The banking system has evolved considerably since Congress allowed investment banks and commercial banks to get together 25 years ago,” he said. “These operations are now interwoven and it’s not as simple as saying, ‘You have to sell half the bank.’ Breaking up is hard to do.”

Wells Fargo is on a self-driven mission to spin off non-core activities. Over the past year, for example, it has agreed to sell its asset-management business and its student-loan portfolio. But separating the bank from dozens of nonbank subsidiaries would no doubt threaten the company’s financial health if done in the time allowed by the Bank Holding Company Act, the law Warren cited in her letter.

Under that legislation, the Fed must give a notice to any institution that falls short on its obligation to remain well capitalized and well managed. If the bank doesn’t fix that within 180 days, the Fed can ask it to divest control of any subsidiary depository institution, or the bank can opt to stop activity that isn’t permissible for a bank holding company. 

Remote as that possibility might be, Warren’s salvo was troublesome enough for the bank that it published a news release outlining nine bullet points defending the progress it has made on risk management and control since 2019. 

“We are a different bank today than we were five years ago because we’ve made significant progress,” the bank said in its statement. “Meeting our own expectations for risk management and controls — as well as our regulators’ — remains Wells Fargo’s top priority.” 

Among its bullet points, the bank noted it split its three business units into five, and added four “enterprise functions” in the name of greater oversight and transparency. The bank also switched out 10 of its 17 operating committee members since 2019, it said. And it cited the consent order — connected to the 2016 fake-accounts scandal — that the Consumer Financial Protection Bureau (CFPB) let expire last week as proof that conditions were improving.

Warren, however, focused not on Wells Fargo’s expired penalty but its newest one — a $250 million fine the Office of the Comptroller of the Currency (OCC) imposed Thursday — as evidence that not much had changed.

She wrote to the bank’s new chairman, Steven Black, saying, according to American Banker, that the OCC fine shows CEO Charlie Scharf has made “little progress toward improving the bank’s governance and changing the culture” yet was “richly rewarded for his failures.”

That appears to be a reference to the $20.3 million in compensation the bank gave Scharf in 2020 — a 12% drop from $23 million in 2019.

Scharf, for his part, addressed both the new and expired penalties in a statement Thursday.

“Sometimes — as is the case today — we will reach a positive milestone on one set of issues and be reminded that we need to redouble our focus on another,” he said. “That will not stop us from getting to where everyone expects us to be, and where we expect ourselves to be.”

The OCC penalty

The OCC’s $250 million fine dings the bank for failing to make progress on a 2018 consent order — specifically, for failing to “detect, prevent and quantify inaccurate loan modification decisions” — in a timely manner.

“Wells Fargo has not met the requirements of the OCC’s 2018 action against the bank,” Acting Comptroller Michael Hsu said in the regulator's Thursday news release. “This is unacceptable.”

Along with the penalty, the OCC barred Wells Fargo from acquiring certain third-party residential mortgage servicing and ordered the bank to ensure harmed borrowers aren’t transferred out of its loan-servicing portfolio until they’re given remediation.

Incidentally, the bank last week named a new executive, Ann Thorn, to lead its home lending servicing group. The move, Wells Fargo said, is unrelated to the penalty. Thorn is replacing Jeff Smith, who announced his retirement in January.

The OCC in April 2018 found the bank improperly charged customers fees for mortgage interest rate locks even if Wells Fargo’s actions had resulted in the loan failing to close in the specified time frame, American Banker reported.

Wells Fargo disclosed three months later that a calculation error caused 625 customers to be incorrectly denied loan modifications. About 400 of those customers lost their homes. At the time, the bank said the issue was corrected in October 2015. A subsequent securities filing revised that assessment, indicating that more customers were affected and the errors continued through April 2018.

The OCC’s new penalty wasn’t entirely unexpected. Bloomberg reported earlier that Wells could face new sanctions over the pace at which it was complying with some consent orders.

“Our work to build the right foundation for a company of our size and complexity will not follow a straight line,” Scharf said in his Thursday statement. “We are managing multiple issues concurrently, and progress will come alongside setbacks. … The work required is clear, and I remain confident in our ability to complete it.”

The trial

Meanwhile, even though the CFPB’s 2016 consent order has expired, the collateral damage from that year may continue as three ex-Wells Fargo executives — former Chief Auditor David Julian, former Executive Audit Director Paul McLinko and former community bank group risk officer Claudia Russ Anderson — head to court this week over their alleged role in the bank’s fake-accounts scandal.

In testimony Monday, Greg Coleman, the OCC's senior deputy comptroller for large bank supervision, said Julian, McLinko and Russ Anderson were Wells Fargo's "lines of defense" against misconduct.

The bank's "incentive sales program was implemented without risk-management controls, without proactive monitoring and it essentially incented the bank employees to open fraudulent accounts, to provide misleading information to customers, resulting in significant harm," Coleman testified Monday, according to Reuters.

The OCC is seeking penalties of $10 million from Russ Anderson, $7 million from Julian and $1.5 million from McLinko, American Banker reported this month. It is also aiming to bar Russ Anderson from the banking industry, Reuters reported.

OCC examiners charged Russ Anderson, McLinko and Julian in January 2020, concurrent with a settlement in which the agency banned ex-Wells Fargo CEO John Stumpf and handed him a $17.5 million penalty. Stumpf and fellow former Wells CEO Tim Sloan are among a list of potential witnesses for the trial.

Lawyers for the defendants are looking to focus attention on flaws in the OCC’s supervision. A report released last September by the Treasury Department’s inspector general found the OCC missed several opportunities to reel in the bank’s sales-related misconduct.

However, according to Reuters, the attorneys were blocked from gathering background information on OCC examiners and from calling OCC witnesses.

"We were stopped from calling four OCC examiners who would have provided testimony that we believe would be evidence of bias, incompetence," Matthew Martens, an attorney for Julian, told the wire service.

Net effect

In her letter to Powell, Warren’s digs against Wells Fargo continued. She labeled the bank an “irredeemable repeat offender,” castigated the bank’s “broken culture” and called the lender “simply ungovernable.”

Powell has yet — at least publicly — to issue a response, so the effect of the senator’s suggestion is unknown. But last week’s OCC penalty may ensure the largest door impeding Wells Fargo’s growth — the $1.95 trillion asset cap the Fed imposed in 2018 — remains shut.