Categories
Business

Buffett calls for more accountability for corporate directors

(Reuters) – Warren Buffett on Saturday called on corporate America to make their boards of directors more accountable to shareholders and less beholden to chief executive officers, perhaps by reducing their pay and requiring that they buy more stock.

In his annual letter to Berkshire Hathaway Inc (BRKa.N) shareholders, Buffett said pay for outside directors has “soared” to levels that might threaten their independence, sometimes reaching $250,000 to $300,000 for two weeks work, while “generous” age limits ensure “fabulous” job security.

Buffett said this can make even “independent” directors resist challenging bad decisions by CEOs, especially in takeovers.

“When seeking directors, CEOs don’t look for pit bulls,” Buffett wrote. “It’s the cocker spaniel that gets taken home.”

He said one large American company he did not identify recently had eight directors who never bought its shares with their own money.

“I feel better when directors of our portfolio companies have had the experience of purchasing shares with their savings, rather than simply having been the recipients of grants,” Buffett wrote.

Berkshire has more than 90 operating units such as the BNSF railroad, Geico auto insurer, and Dairy Queen ice cream.

Its own 14-person board is no paragon of youth, with six directors — including the 89-year-old Buffett — over age 70 and three in their 90s.

And the voting influence of most Berkshire directors is limited because Buffett, considered by many among the world’s greatest investors, controls nearly one-third of the voting power despite owning only about one-sixth of Berkshire’s stock.

Still, no Berkshire director was paid more than $7,300 for their work at the company in 2018, a regulatory filing shows, though several including Buffett and Microsoft Corp (MSFT.O) co-founder Bill Gates are billionaires, and can afford it.

Buffett also said adding women to boards “remains a work in progress.” Three Berkshire directors are women.

Buffett said he has been a director at 21 publicly-traded companies including Coca-Cola Co (KO.N), Kraft Heinz Co (KHC.O) and Washington Post Co, and in all but two “represented a substantial holding of stock.”

He has given up all directorships apart from Berkshire, one of several moves in recent years to reduce his workload.

Source: Read Full Article

Categories
Business

Buffett defends Berkshire stock push, reassures on future as profit smashes record

NEW YORK (Reuters) – Warren Buffett on Saturday forcefully defended Berkshire Hathaway Inc’s (BRKa.N) decision to invest heavily in stocks of companies such as Apple Inc (AAPL.O) as he labors through a four-year drought since his last major acquisition of a company.

Buffett, 89, also used his annual letter to Berkshire shareholders to assure they should not worry about the future of the company, which is “100% prepared” for when he and 96-year-old Vice Chairman Charlie Munger are no longer around.

Berkshire also posted record full-year earnings of $81.42 billion, nearly twice the prior high from 2017, boosted by unrealized gains from its stock investments. Operating profit, however, fell 3% to $23.97 billion.

The Omaha, Nebraska-based conglomerate ended the year with a $128 billion cash hoard, after repurchasing $2.2 billion of stock in the fourth quarter and $5 billion in 2019.

“I do think it’s on the right path,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which invests one-fourth of its assets in Berkshire. “Its balance sheet is exactly the type of toolkit you’d like to leave a successor.”

Berkshire has more than 90 units employing 391,539 people, including the BNSF railroad, Geico car insurer, Dairy Queen ice cream and See’s candies; clothing and jewelry companies, and namesake utility and real estate brokerage businesses.

It also invests in such companies as American Express Co (AXP.N), Bank of America Corp (BAC.N) and Coca-Cola Co (KO.N).

Berkshire ended the year with a $128 billion cash hoard, having made no major acquisitions since paying $32.1 billion in January 2016 for aircraft parts maker Precision Castparts, and Buffett lamented his inability to find big companies to buy.

“The opportunities to make major acquisitions possessing our required attributes are rare,” he wrote.

Related Coverage

  • Rising stocks fuel record profit for Buffett's Berkshire; operating profit disappoints
  • Buffett calls for more accountability for corporate directors

Buffett’s letters have grown shorter in recent years, with less humor and less discussion about the economy and investing.

James Shanahan, an Edward Jones & Co analyst who rates Berkshire a “buy,” called Saturday’s letter a missed opportunity to show how Berkshire, whose stock has trailed the Standard & Poor’s 500 .SPX over the last decade, is undervalued.

“It felt much more businesslike and detached, and lost some of the wisdom that made it so entertaining,” he said.

AMERICAN TAILWIND REVISITED

The record profit is largely the result of an accounting rule that Buffett urges investors to ignore, requiring Berkshire to report paper gains and losses from its stock holdings with net income.

Buffett, whose $90.2 billion net worth makes him the world’s fourth-richest person according to Forbes magazine, said that while he still prefers buying whole companies, stocks are a better bet than low-yielding bonds.

He attributed that in part to the “American Tailwind,” or the economy’s ability to grow despite roadblocks such as war, high inflation and financial panic.

“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” he wrote.

Buffett’s comments surprised Stephen Dodson, who manages the Bretton Fund, which owns Berkshire shares.

“I was expecting him to say the market was expensive,” Dodson said. “He didn’t even hint that.”

The cash stake has nonetheless been a drag for investors.

In 2019, Berkshire’s stock rose 11% while the S&P 500 including dividends rose 31.5%, the biggest shortfall in a decade.

SUCCESSION

Buffett also used his letter to comfort investors that Berkshire will be in good hands after he leaves.

In 2018, Berkshire promoted Greg Abel, 57, and Ajit Jain, 68, to vice chairmen, giving them oversight of Berkshire’s non-insurance and insurance operations, respectively, and freeing Buffett and Munger to focus on deploying capital.

Buffett also has portfolio managers Todd Combs and Ted Weschler helping him buy stocks.

Combs, 49, on Jan. 1 also became Geico’s chief executive.

“Charlie and I long ago entered the urgent zone,” Buffett wrote. “That’s not exactly great news for us. But Berkshire shareholders need not worry: Your company is 100% prepared for our departure.”

He also said shareholders will be able to ask Abel and Jain questions at Berkshire’s annual meeting on May 2, where Buffett and Munger normally do most of the talking.

“I’m comfortable with how Berkshire is moving up the next generation,” said Thomas Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania, a longtime Berkshire shareholder.

Buffett said his estate may need 12 to 15 years to dispose of his Berkshire stock, which is going to charities including the Bill & Melinda Gates Foundation, and Berkshire stock will be “a safe and rewarding investment” during that time.

The disposal plan “gives investors the ability to focus on everything else,” said David Marcus, chief investment officer at Evermore Global Advisors, who personally owns Berkshire shares. “If Buffett weren’t the age that he is, it wouldn’t matter.”

Source: Read Full Article

Categories
Business

The ECB wants to talk to you about inflation. But will it listen?

FRANKFURT/RIYADH (Reuters) – For many people, the language of European Central Bank policymakers is so impenetrable, it could be beamed from another planet.

Now, however, the ECB experts are in for a dose of real life as they meet audiences ranging from students to clergy this year to get their views on inflation and feedback on the central bank’s work, six officials told Reuters.

The series of events, called “ECB Listens” after a similar initiative by the Federal Reserve, illustrates a marked change in style under new President Christine Lagarde, a former politician with a penchant for public relations.

Just last October her predecessor, then President Mario Draghi, had expressed his reservations about communicating with the public at large rather than finance aficionados.

“One has to be cautious about that because as soon as you change your audience, you change your language and you naturally step into a different realm: the realm of politics,” he said.

The change of tack could also be an indication of the quandary the euro zone’s central bank finds itself over the adequacy of the inflation data used to justify trillions of euros worth of monetary stimulus to support Europe’s economy.

Surveys show households in the euro zone perceive inflation to be far higher than official data. Some ECB policymakers suspect this is because the data does not factor in changes in the price of homes occupied by their owners – a key measure of financial health for millions of people.

An ECB spokesman declined to comment.

TAKING AIM AT INFLATION TARGET

The ECB will kick off proceedings, part of a year-long strategic review, with an event in Brussels on March 26, according to the sources who are on or close to the ECB’s Governing Council. Each of the euro zone’s 19 national central banks has been asked to hold at least one such meeting by the summer, they said.

The ECB is unlikely to make any communication about the outcome of its review, which could see it redefine its inflation target, until well after the end of the public consultations, the officials added.

This would dash the hopes of some policymakers, including Slovak central bank governor Peter Kazimir, who have said they would like to see the ECB’s revised inflation target published early, in time for its annual forum in Sintra, Portugal starting on June 29.

“It would look pretty awful if we put out substantial communication on the review in June because that would mean we are not taking the feedback seriously,” said one of the sources, who all spoke on condition of anonymity because the ECB’s deliberations are private.

PUBLIC CONSULTATION OR RELATIONS?

The public meetings will see small entrepreneurs, academics, students, pensioners and even priests invited to give ECB policymakers a piece of their mind on inflation as well as other topics ranging from climate change to digital currencies.

However, the public meetings may draw accusations from some quarters of simply being a public-relations exercise.

The sources themselves were unanimous in believing input from the public was unlikely to sway deliberations on how to reset the ECB’s definition of price stability, currently worded as an inflation rate “below, but close to 2%”.

Rather, policymakers are keen to understand why perceptions of inflation are so high and why salary growth is comparatively sluggish.

They will also try to explain the ECB’s activities in simpler language, in line with the personal style of Lagarde, a former French finance minister and head of the International Monetary Fund.

“There is a covert goal of spreading the ECB’s message to the people,” one of the sources said. “It’s an experiment in a new communication approach.”

Source: Read Full Article

Categories
Business

Buffett defends investments in stocks, which fueled record Berkshire profit

(Reuters) – Warren Buffett on Saturday defended Berkshire Hathaway Inc’s decision to invest heavily in the stocks of companies such as Apple Inc, as the conglomerate struggled to find whole businesses to buy.

Buffett made his assessment in his annual letter to Berkshire shareholders, where the 89-year-old also assured that Berkshire is “100% prepared” for the eventual departures of himself and Vice Chairman Charlie Munger, 96.

Berkshire also reported record net income for the year of $81.42 billion, reflecting enormous gains in its common stock holdings, though operating profit fell 3%.

The annual letter has long been eagerly awaited by investors and fans for its straight talk about Berkshire, the economy, investing and other topics.

It has been shorter in recent years, with Buffett saving many of his comments for television interviews and Berkshire’s annual shareholder meeting, which is webcast.

Source: Read Full Article

Categories
Business

Woman quits job after creating a new drink in her kitchen inspired by her mum

Dialling back on your drinking when you work in the drinks industry isn't the easiest things to do – but that was exactly what gave Ellie Webb the idea for her business.

Barely three years after the first inspiration for a new business struck, she's sold tens of thousands of bottles of her drink Caleño – and it's currently being stocked in Sainsbury's, Wetherspoons and on Amazon.

And it all started with too much sugar.

After another boozy Christmas, where parties and work events saw an awful lot of alcohol consumed, Ellie decided it was time to cut back.

"I decided to have a break from it all and reset," the 29-year-old she told Mirror Money.

But that didn't mean she didn't still want to have fun.

"I went to a gig in Bristol with friends as the designated driver, it was quite a fun night," she said.

"I got to the bar and ordered a Coke. Later on I ordered another and then after that I didn't want any more – so I just got a water.

"I wanted something a bit more grown up than the Cokes and J20s on offer."

But Ellie failed to find it, not there, not in pubs and not in the supermarket.


  • Best 8 ideas for businesses that could make you rich in 2020

  • Dad unable to eat chocolate now making £1m from brand he created in his kitchen

While there were some alcohol-free beers, and alcohol free wine could be found now and again, there just wasn't anything suited to her palate.

And that meant there was a gap in the market for a grown up drink that didn't include alcohol, which you could have with a tonic or another mixer.

"From what I could see, it wasn't readily available," Ellie said.

Ellie started talking to friends to see if other people felt the same way, she even sent a survey to her Facebook contacts, but the idea for an alcohol-free spirit you could have with a tonic might have stopped there.

A few months later Ellie booked a trip to go back to see her family Colombia and it became the next step in the creation of her business.

With her mum born in Cali – Colombia's second city, known as the capital of salsa dancing – and a lot of her family still living there, Ellie had spent a lot of time visiting as a child.

And heading back after the problems she'd had trying to have fun while not drinking in Britain gave her new inspiration.

"People [in Cali] seem to be able to get up and dance and have a good time without needing a drop of alcohol," Ellie said.

And that gave Ellie an idea of what her drink would be about.

"Make it fun, make it accessible" she explained. "Basically, make not drinking joyful."

"Coming back I was even more determined," she said.


  • Meet the 14-year-old making THOUSANDS from a business he started in his bedroom

While still working in her old job, Ellie started experimenting in her kitchen – taking more inspiration from her Colombian heritage.

And there was a lot to work with.

"Colombia is the second most bio-diverse country on Earth," Ellie explained.

Naming the drink Caleño – a term for people who came from Cali – she wove tropical flavours like Inca berries and pineapple and papaya into her non-alcoholic spirit.

"I bought lots of botanicals and was playing about with flavours in my kitchen," she added.

She applied for a grant to help her – which covered work on product development and branding – and started testing her new drink out in bars.


  • Sisters start business in their garage – now it's worth £8million thanks to power of Instagram

She even headed to a mindful drinking festival, carrying 20 hand-filled and labelled bottles of her drink with her to try out.

"A man from Sainsbury's Future Brands department tried it, liked it and said he'd be in contact," Ellie explained.

"I was highly sceptical, but I actually did have an email from him on Monday."

"Towards the end of the year [2018] he connected me with a buyer."

"I'd only sent 100 bottles at that point, many to friends and family, my next order was for 6,000."


  • Mum quits high-flying job to start business making waffles with her best friend

Ellie left her job to focus on Caleño in July 2018.

"I thought I'd kick myself if I didn't give it a try," she said. "The worst thing that can happen if I quit is I'm forced to get another job."

Caleño hit stores in March 2019.

As well as being in Sainsbury's, Ellie was starting to see people buy Caleño on Amazon. "Bottle sales just started to fly," she said.

By December she was selling 1,000 bottles a month through Amazon and by the end of the year she'd shifted 30,000 in total.

And that success means Ellie's no longer operating from her kitchen table.

Her first employee was her sister, Christie, in April last year and she's now got 5 people working for Caleño.


  • We started a popcorn business in mum’s shed ‒ now it's bringing in thousands

"I've got a bit of a team now," she said.

And things are only going to get bigger from here.

Caleño launched as the only non-alcoholic gin in the Wetherspoon's gin festival on 14 February and she's looking at how to move beyond Britain as well as into more pubs, bars and shops here.

Last year, more than 4 million Britons said they were going to complete Dry January, while the new non-alcoholic spirits category is already worth £5million a year in the UK alone.

But why stop at the UK?

"This year is about going global," Ellie said.

After all, the trend to cut back on alcohol consumption is far from just a UK one – with other European cities as well as places like the UAE high on her list of places to start exporting to.

But for Ellie it's not just about health – it's about having fun too.

"I want to put a bit of joy into not drinking," Ellie said.

And with her non-alcoholic spirit named after the South American capital of salsa, who would bet against her?

Ellie's tips to starting your own business

  • Make sure you check your idea is something people actually want – that there's a need for it. It's too easy to make something designed for you or your friends only to discover it doesn't apply to anyone else

  • Passion matters. You have to dream, but it's a lot of hard work to make that a reality. Being passionate about what you're doing gets you through that work.

  • Talk to your competitors. Starting out there will be things you simply don't know how to do, your competitors might. I've found them remarkably helpful and willing to share, and it's incredibly useful having people to reach out to.

Source: Read Full Article

Categories
Business

U.S. Treasury's Mnuchin: Tax certainty needed on global basis

RIYADH (Reuters) – U.S. Treasury Secretary Steven Mnuchin said on Saturday it was very important to have tax certainty on a global basis and that the OECD was very close to consensus on a framework for minimum corporate tax.

“You cannot have in a global economy different national tax systems that conflict with each other,” Mnuchin told an economic conference in Saudi Arabia, which is hosting finance leaders of the world’s 20 largest economies.

“The good news is we’re very close to a consensus on pillar 2,” he said, referring to OECD tax reform talks on an international framework for minimum corporate tax.

The Organization for Economic Cooperation and Development is in the middle of the biggest rewrite of decades-old international tax rules that proposes giving governments more power to tax big multinationals doing business in their countries.

Source: Read Full Article

Categories
Business

Wells Fargo to pay $3 billion to U.S., admits pressuring workers in fake-accounts scandal

WASHINGTON (Reuters) – Wells Fargo & Co (WFC.N) will pay $3 billion to resolve criminal and civil probes into fraudulent sales practices and admitted to pressuring employees in a fake-accounts scandal, U.S. officials said on Friday, wrapping up one of the last major investigations looming over the bank.

Wells Fargo will pay the penalties to the U.S. Justice Department and Securities and Exchange Commission and enter into a three-year deferred prosecution agreement during which the San Francisco-based bank will continue to cooperate with any ongoing government investigations, Justice Department officials said.

As part of the deal, Wells Fargo admitted that between 2002 and 2016 it pressured employees to meet “unrealistic sales goals that led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent, often by creating false records or misusing customers’ identities,” the department said in a statement.

In a statement, Charles Scharf, Wells Fargo’s new chief executive, described the past conduct as “reprehensible.” Wells Fargo is the fourth-largest U.S. lender.

“This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” Nick Hanna, U.S. attorney for the Central District of California, said in a statement.

Top managers within Wells Fargo’s Community Bank division were aware of the “unlawful and unethical” practices as early as 2002, and many of the practices were referred to as “gaming” within the bank, the Justice Department said.

The agreement resolves the civil and criminal liability regarding Wells Fargo’s fake-accounts scandal.

About $500 million of the penalties will go to the SEC to be distributed to investors to settle charges that the bank committed fraud by misleading investors about its sales practices, an SEC official said on a call with reporters about the resolutions settlement.

Settling the multi-agency investigation marked an important milestone for Scharf, who joined the company from BNY Mellon in September shortly after the third anniversary of the scandal.

Related Coverage

  • Factbox: Remaining hurdles for scandal-hit Wells Fargo

“We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward,” Scharf said.

‘GHOST IN A MACHINE’

Watchdog group Public Citizen criticized the deal, saying it does not go far enough.

“Any resolution for Wells Fargo’s massive, management-directed misconduct must hold individuals to account. We know many of the crimes, and we know that real executives, not some ghost in a machine, committed them,” said Bartlett Naylor, a financial policy advocate with the Washington-based group.

The deal does not preclude civil or criminal charges against individuals, Justice Department officials told reporters.

The probe examined activities in Wells Fargo’s community bank unit, with Justice Department citing pressure coming from the division’s leadership.

In a rare move last month, a U.S. bank regulator charged several former Wells Fargo executives for their roles in the scandal. That included a settlement with former CEO John Stumpf and civil charges against Carrie Tolstedt, former head of the community bank unit.

“Ms. Tolstedt acted appropriately and in good faith at all times, and the effort to scapegoat her is both unfair and unfounded,” her lawyer Enu Mainigi said on Friday.

The Justice Department inquiry was seen by analysts and investors as a key hurdle the bank had to clear before it could focus on its growth strategy, which includes convincing the Federal Reserve to remove an unprecedented growth restriction placed on Wells Fargo’s balance sheet until it proves it has fixed its risk management and controls.

Wells Fargo had already paid out more than $4 billion in fines and penalties related to the scandal since 2016. Internal and external probes have uncovered issues in each of Wells Fargo’s major business lines, including wealth management and the commercial bank.

The U.S. House of Representatives Financial Services Committee is scheduled to hold three hearings on Wells Fargo’s conduct next month.

Over the past three years, Wells Fargo has taken various steps to fix its issues and rebuild trust with customers, investors and regulators. They include changes to its board, centralizing risk teams and hiring an external chief executive. However, ongoing reputation issues and unresolved legal matters have weighed on the bank’s stock price and profitability, which have lagged peers since 2016.

Source: Read Full Article

Categories
Business

In next downturn, Fed may opt for quick, strong action

NEW YORK/SAN FRANCISCO (Reuters) – In the next economic downturn, the Federal Reserve and other central banks may need to roll out their big guns sooner and use them more aggressively, or risk getting mired in growth-sapping deflation or worse.

That was the argument laid out Friday by a group of veteran monetary policy analysts and Federal Reserve Governor Lael Brainard, who called for using now-familiar policy tools like forward guidance more forcefully, and adopt new ones like capping interest rates to bolster the Fed’s clout.

The broad approach appeared to have some support among other policymakers grappling with the how the Fed and other central banks should prepare to fight a future recession. If there is disagreement, it is not over the general idea that tools like massive bondbuying – or “quantitative easing” – are now a staple of central bank practice; it is over how specifically the Fed should spell out its future crisis-fighting plans in advance.

Intense efforts are underway at central banks globally to develop new ways to fight shocks amid low inflation and low interest rates that make conventional responses, like simply reducing a target borrowing rate, less potent than previously.

The Fed is in the midst of its own review and expects to put forward any changes to its framework by mid-year.

The discussion on Friday put some color on how that review is going.

Although the review has focused on how the Fed should pursue its 2% inflation target, downside risks to an otherwise healthy economy have raised the specter that policymakers may need to introduce unconventional policies sooner rather than later.

As Friday’s discussion got underway, a report showed U.S. business activity stalled this month and more people were reported to be infected with the coronavirus in China and elsewhere.

Stocks fell, yields on U.S. Treasuries sank and interest-rate futures traders were pricing in two U.S. interest rate cuts by year’s end. That would move the Fed ever closer to the “zero lower bound” where policies like quantitative easing would come into play.

Brainard’s call for expanding the Fed’s policy arsenal to battle coming shocks came in response to a paper showing that the central bank’s bond-buying and forward guidance deployed during the last crisis had only mixed results and that argued those tools could have been more effective had they been used more decisively.[L1N2AK1NG]

“The lessons from the crisis would argue for an approach that commits to maintain policy at the lower bound until full employment and target inflation are achieved,” Brainard said. “This forward guidance could be reinforced by interest rate caps on short-term Treasury securities over the same horizon.”

In the last crisis, the Fed did vow to keep interest rates at zero until certain employment and inflation targets were met, but only after years of trying other tools.

Yield curve caps, which would deliver more policy easing than forward guidance or bond-buying alone, would be new for the Fed, although other central banks have tried it.

Earlier this week, Richmond Fed President Thomas Barkin suggested he would be on board with a proactive approach to policy, though it was unclear how supportive he would be of new tools.

“I am convinced that we can act faster and with more commitment using tools we already have, such as forward guidance,” Barkin said.

Other policymakers weighed in on Friday with their own caveats.

“The reality is that you cannot continually go strong,” Atlanta Fed President Raphael Bostic said. “You have certain moments in time when you can hit it… Timing matters incredibly.”

Fed Vice Chair Richard Clarida told the conference that he is inclined to take less of a signal from markets when their cues conflict with what the Fed is hearing from businesses, households and economists, and from what their own models spit out.

That is the case currently, with economists and Fed policymakers projecting a hold on rates through this year, while interest-rate futures are pricing in rate cuts.

It is only when various signals all point in the same direction that they will have a material effect on Fed action, Clarida suggested. [L1N2AL0ZE]

To Brainard, communication is a key component of the Fed’s expanded tool box. She said the Fed should clarify in advance that “we will deploy a broader set of tools proactively to provide accommodation when shocks are likely to push the policy rate to its lower bound.”

Equally important, she added, “we should adopt a strategy that successfully achieves maximum employment and average inflation outcomes of 2 percent over time.”

Brainard said she supports a strategy in which the Fed would target a range of inflation outcomes that would allow it to achieve 2% on average overall, known as flexible average inflation targeting.

She also called, as have other Fed officials, for stronger fiscal responses in a downturn, since monetary policy alone will likely not be enough.

Citibank chief economist Catherine Mann went further.

“Policy coordination across countries may be an important way in which to deal with a global financial stress,” she told the conference. “Monetary policy cannot be the only game in town.”

Source: Read Full Article

Categories
Business

Wells Fargo to pay $3 billion to U.S. authorities to resolve probe into fake accounts

WASHINGTON (Reuters) – Wells Fargo & Co (WFC.N) and one of its units will pay $3 billion to resolve criminal and civil probes into years of fraudulent sales practices, U.S. authorities said on Friday, wrapping up one of the last one major investigations looming over the bank.

Wells Fargo and its North American subsidiary will pay the penalties to the U.S. Justice Department and Securities and Exchange Commission and enter in a deferred prosecution agreement lasting three years, the department said.

The bank admitted that it pressured employees to meet “unrealistic sales goals that led to thousands of employees opening millions of accounts for customers under false pretenses or without customer consent often by misusing customers’ identities” from 2002 to 2016, a senior Justice Department official said.

The agreement with the bank, the country’s fourth largest U.S. lender, resolves the civil and criminal liability regarding Wells Fargo’s fake accounts scandal. About $500 million of the penalties will go to the SEC to be distributed to investors, the Justice Department said.

Settling the multi-agency investigation marked an important milestone for Charles Scharf, Wells Fargo’s new chief executive who joined the company from BNY Mellon in September shortly after the third anniversary of the scandal.

The Justice Department investigation was seen by analysts and investors as a key hurdle the bank had to clear before it could focus on its growth strategy, which includes convincing the Federal Reserve to remove a cap imposed on its balance sheet.

“Today’s announcement should serve as a stark reminder that no institution is too big, too powerful, or too well-known to be held accountable and face enforcement action for its wrongdoings,” Andrew Murray, U.S. Attorney for the Western District of North Carolina, said in a statement.

The deal does not preclude civil or criminal charges against individuals. The senior department official declined to comment further regarding any ongoing probes.

In a rare move, a U.S. bank regulator charged several former Wells Fargo executives for their roles in the sales scandal last month.

Related Coverage

  • Factbox: Remaining hurdles for scandal-hit Wells Fargo

Wells Fargo had already paid out more than $4 billion in fines and penalties since the 2016 revelation that its sales practices encouraged employees to open potentially millions of unauthorized bank accounts in order to hit lofty sales targets.

Since then, internal and external probes have uncovered issues in each of Wells Fargo’s major business lines, including wealth management and the commercial bank. The fallout has also resulted in the Federal Reserve imposing an unprecedented growth restriction on Wells Fargo’s balance sheet until it proves it has fixed its risk management and controls.

Over the past three years, Wells Fargo has taken various steps to fix its issues and rebuild trust with customers, investors and regulators. They include refreshing its board, centralizing risk teams and hiring an external chief executive. However, ongoing reputation issues and unresolved legal matters have weighed on the bank’s stock price and profitability, which have lagged peers since 2016.

Source: Read Full Article

Categories
Business

U.S. authorities to announce deal over Wells Fargo's sales practices scandal: sources

WASHINGTON (Reuters) – U.S. authorities will soon announce a settlement related to Wells Fargo’s multi-year sales practices scandal, according to two sources familiar with the matter, wrapping up one of the last one major probes looming over the bank.

The agreement could be announced as early as Friday afternoon, the sources said. Details were not yet known, but it was expected to involve both the U.S. Department of Justice and the Securities and Exchange Commission, according to one of the sources.

A spokesman for Wells Fargo declined to comment. The bank has previously said it set aside $3.1 billion to deal with ongoing litigation related to sales practices matters.

The U.S. Securities and Exchange Commission and Department of Justice declined to comment.

The country’s fourth largest U.S. lender has paid out more than $4 billion in fines and penalties since the 2016 revelation that its sales practices encouraged employees to open potentially millions of unauthorized bank accounts in order to hit lofty sales targets.

Since then, internal and external probes have uncovered issues in each of Wells Fargo’s major business lines, including wealth management and the commercial bank. The fallout has also resulted in the Federal Reserve imposing an unprecedented growth restriction on Wells Fargo’s balance sheet until it proves it has fixed its risk management and controls.

Over the past three years, Wells Fargo has taken various steps to fix its issues and rebuild trust with customers, investors and regulators. They include refreshing its board, centralizing risk teams and hiring an external chief executive. However, ongoing reputational issues and unresolved legal matters have weighed on the bank’s stock price and profitability which have lagged peers since 2016.

Source: Read Full Article