Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading

Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

Continue Reading

Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

Continue Reading

Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

Continue Reading

Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

Continue Reading

Categorized | Banks

Crimes, misdemeanours and cross-selling


Posted on September 19, 2016

A Wells Fargo branch is seen in the Chicago suburb of Evanston, Illinois, February 10, 2015. REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS LOGO) - RTR4P2WV©Reuters

Just a few months ago, Wells Fargo boss John Stumpf was basking in yet another set of sparkling quarterly results — the latest evidence that this low-risk, high-return California-based bank was pulling away from the big names of Wall Street. Since 2010, Wells Fargo’s revenues are up 5 per cent, while those of Goldman Sachs are down 10 per cent.

But, like so many before him, Mr Stumpf and the bank he has led since 2007 have now fallen from grace — and in an all too familiar way.

    Over the past week, details have emerged of a grubby practice that saw as many as 2m phantom accounts and credit cards being created for clients without their knowledge. And the purpose was clear: to inflate sales numbers, hit targets and boost bonuses. More than 5,000 staff have lost their jobs over the affair. Wells has been fined $185m and billions of dollars was wiped off its market value, demoting it from its rank as the world’s most valuable lender.

    On Tuesday, Mr Stumpf will face an inquisition at the Senate Banking Committee. It promises to be a hostile experience — the committee’s no-nonsense chairman, Elizabeth Warren, is not known for her love of the banking sector and has already talked of Wells’ “staggering fraud”.

    Activist investors and other critics have also pointed a finger at Wells’ corporate governance shortcomings — a boss who is both chairman and CEO; a cosy ageing board whose average member has a tenure of nearly 10 years; and a failure to pursue Carrie Tolstedt, who ran the phantom accounts division and recently left with a $7m bonus.

    But the broader disappointment is that yet another bank — one that appeared in most ways to be successfully run — should have fostered such a rotten hard-sell culture.

    It is as if the industry’s multiple mis-selling scandals of recent years — from US subprime mortgages to UK payment protection insurance — never happened. As if history had taught no lessons.

    Hard-sell techniques and aggressive sales targets are unpleasant in any domain, from the car showroom to the fruit and veg market. How much more disturbing when your bank sells you multiple products you did not want or know about.

    European banks have long gazed in wonder at the cross-selling nous of US banks. Every household with a Wells current account buys a further 6.27 products from the bank, according to its latest statistics.

    Last week, however, in response to the scandal, Mr Stumpf told staff to stop proactive cross-selling. A day later, he dropped sales-based pay structures — a measure that UK banks had already taken after the widespread mis-selling of payment protection insurance on credit deals.

    Mr Stumpf failed to learn from other earlier scandals until it was too late. Now Wells should serve as a wake-up call to all those who still impose cross-selling targets and aggressive sales goals with bonuses linked to them.

    Wells was certainly giving rival banks pause for thought last week. One European bank boss said his executive committee had debated the lessons of the Wells affair but concluded its own practice of limiting branch staff bonuses to 10 per cent of base pay was adequate protection against the risk of aggressive cross selling.

    Militating against employees who are so greedy (for bonuses) or so fearful (of losing their job) that they focus on sales numbers rather than customers’ interests is essential business practice.

    Cleaning up is also pragmatic in a post-crisis world. These days, regulators are pursuing misconduct as assiduously as they forced the build-up of bank capital after the 2008 crisis.

    It is too early to quantify the fallout that Wells will suffer, beyond its modest $185m fine. There could be further legal and regulatory action, as well as reputational damage and customer disaffection. In the UK, the PPI debacle has triggered compensation payments of £25bn and counting.

    Despite this, some banks still seem to believe that, in today’s tougher trading environment, there is a greater necessity to seek additional revenue — wherever, and however, possible.

    But the evidence is now mounting: the concept of cross-selling, especially when it is aggressively managed, morphs all too often into mis-selling. For banks, with all their other woes, that is simply not sustainable.

    patrick.jenkins@ft.com