Nights in White Satin – The Continued Pain at Wells Fargo

by Thomas Fox
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The Moody Blues were inducted into the Rock and Roll Hall of Fame this weekend. Ann Wilson of Heart introduced the band for their award and jam session. The band has been eligible for the Rock and Roll Hall of Fame since its inception in 1990 yet for reasons not clear they were not nominated until this year. With the overwhelming support of their huge fan base they were elected in this year, in their first year of being nominated. The Moody Blues and their song Nights in White Satin inform today’s blog post topic of Wells Fargo.

As reported in RollingStone.com Wilson said, in part, “From day one, Denny Laine, Ray Thomas, Mike Pinder, Graeme Edge, John Lodge and Justin Hayward hit hard and go way deep. The Moody Blues are as mind-blowing in concert as on record. They have sold 70 million albums and counting worldwide and they have continued to do so without selling their creative soul for 54 years and counting. Tonight, the Rock and Roll Hall of Fame finally honors what 70-plus million listeners and counting have known for over half a century.” “All this is beyond impressive and is mind-boggling, but let us not overlook the simple fact that the Moody Blues are, and have always been, a kickass rock band.” That they are.

I fell in love with the Moody Blues for their concept albums. Their first was Days of Future Pastwhich they have been playing live over the past year in honor of its 50thyear anniversary release. The most well-known song in that masterpiece is Nights in White Satin, which the Financial Times (FT) reported on this weekend in its Life of a Song column. The piece was written by guitarist Justin Hayward when he was only 19. The song still moves Hayward as he said for the FT, “You can do it in a soundcheck and technically it’s nice, but you play it in front of an audience and they bring a sort of magic to it…It’s great. It’s something I would never want to give up.” It is the same for me.

I thought about Moody Blues quite a bit this weekend as they garnered recognition from the Rock and Roll Hall of Fame with their induction. Of course, I listened to their catalog to get me in the right frame of mind for their induction on Saturday night. One of the things which struck me about all of this was the confluence in reading the recent news about Wells Fargo and another potential fine from federal regulators. This fine is proposed by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller. As reported by the Wall Street Journal(WSJ), the proposed fine is a stunning $1 billion to resolve probes into auto insurance and mortgage lending abuses at the bank.

This proposed fine led Wells Fargo to note that while its 2018 first quarter profits rose, it may be required to restate earnings due to the large fine. This is in addition to Q1 revenues dropping from the same time period last year and the bank’s stock taking a pounding on Friday, of over 3%. Finally, was the grim news about still increasing expenses at the bank which rose another 3.2% for the quarter coming in at a hefty $14.2bn.

The Washington Post reported, “Such a large civil penalty would be the latest hit to Wells Fargo’s effort to rebuild its image after more than a year of scandal.” Wells Fargo itself has “acknowledged that it charged thousands of customers for auto insurance they didn’t need, driving some to default on their loans and lose their cars through repossession. The bank has also said it will refund customers who were charged improper fees to lock in an interest rate for a Wells Fargo mortgage.”

All of the above is on top of the $185 million in fines and penalties the bank agreed to in the original fraudulent accounts scandal. In that imbroglio the bank reserved another $1bn+ for remediation and settlements and there may be additional scandals still lurking for which regulators demand sanctions. In January the bank agreed to a sanction which capped its growth until milestones are reached to satisfy the Federal Reserve Bank. At this point there is no end date for this most serious sanction.

The Wells Fargo scandals continue to be one of the starkest lessons about the cost of a corrupt culture and the catastrophic effect it can have on an organization. The former Chief Executive Officer (CEO) and head of the business unit where the fraudulent accounts originated were dismissed. The Board of Directors has been required to largely reconstitute itself and the current CEO admitted that the bank has far to go before it can move past the scandal. Of course, the bank will have to pay back all the money from those it defrauded as well.

Wells Fargo drives home the need to have ethics at the center of your business. Only by doing so can you have a culture of compliance so that employees will do the right thing when the time comes. Wells Fargo has paid and will continue to pay a high price for its failures, yet it must change an entire culture which punished and retaliated against those who spoke up against fraud and corruption. It must also change not only its compliance program but the structure of an organization which prevented the Board of Directors from having sight into the culpable business units after the scandal was made public in the Los Angeles Times. One might only hope that the current CEO Tim Sloan, understood the irony in his statement last week, “In terms of declaring victory and walking ahead, we’re not quite there yet.” Perhaps it was simply a banker’s understatement.

This final line reminded me of the most poignant line in Nights in White Satin(at least for me) which is “letters I’ve written, never meaning to send”. It turns out those were a reference to Justin Hayward’s girlfriend with whom he had broken up with when he was writing the song. The older I get, the more I see teenaged angst with us all for a long time. Maybe Hayward was just prescient.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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