Wells Fargo Warns Review May Find More Bogus-Account Victims

(Bloomberg) -- Wells Fargo & Co., seeking to resolve a bogus-account scandal that shook the company last year, warned investors it may find more victims. Separately, it said U.S. authorities are examining whether other firms abused its technology to violate international sanctions.

The bank has expanded a review into how employees pitched accounts and other products to customers, looking at a broader time frame, and is now refining its methodology to identify any improper sales, the company said in an annual regulatory filing. “This work could lead to, among other things, an increase in the identified number of potentially impacted customers,” it said.

In the other matter, Wells Fargo said it discovered overseas banks were using its software tools to help finance trade with countries and entities subject to U.S. sanctions. Wells Fargo said it alerted the Treasury Department's Office of Foreign Assets Control and is cooperating with a Justice Department inquiry. It doesn't appear that any of the transactions flowed through accounts at the bank, it said in the filing.

Leaders of the San Francisco-based lender have been working since September to restore its reputation and assuage public furor after authorities fined the company $185 million for possibly opening more than 2 million retail bank accounts without customers' approval. The bank has vowed to investigate what happened and make customers whole.

Wells Fargo said it has spent $3.2 million giving refunds to customers identified in an earlier review. Any additional reimbursements probably won't “have a significant financial impact,” the company said Wednesday.

Withholding Bonuses

The bank also announced Wednesday that it will withhold 2016 cash bonuses from eight senior executives -- including Chief Executive Officer Tim Sloan and Chief Financial Officer John Shrewsberry -- and claw back equity-linked compensation received earlier as the board holds management accountable for the accounts scandal. The decisions will pull about $32 million in pay and equity awards from the executives.

The pay actions -- which were decided Feb. 28 -- weren't meant to signify findings of improper behavior, Chairman Stephen Sanger said in a statement. The board's investigation is continuing.

Docking pay from managers is “part of the right message,” according to CtW Investment Group, which speaks for a consortium of retirement funds managing more than $200 billion.

“What they are saying here is that, companywide, there has to be a general acknowledgment of the scale of the problem and some significant changes,” said Richard Clayton, the group's research director.

Potential Impact

Wells Fargo hasn't disclosed Sloan's target cash bonus for last year. For 2015, the year before he became CEO, it was $1 million. He also was headed for a payout at or near the maximum set in his 2014 equity award, according to Bloomberg calculations. That would mean he could lose out on as much as roughly $5 million of equity, valued as of Tuesday's closing price.

Bloomberg's estimates for equity payouts are based on average return on common equity for 2014 to 2016, not return on realized common equity, which is the basis for the bank's long-term incentive plan.

The pay actions also affect business heads David Carroll, who leads wealth and investment management; Avid Modjtabai, who oversees the bank's new group linking payments, technology and innovations; Chief Risk Officer Michael Loughlin; Chief Administrative Officer Hope Hardison; Chief Auditor David Julian; and General Counsel James Strother. A bank spokeswoman declined to provide a breakdown of how much each executive will forgo and wouldn't comment on Bloomberg's calculations.

The company will probably disclose 2016 pay for four of the executives -- Sloan, Shrewsberry, Carroll and Modjtabai -- in a March proxy statement because they are named officers. It typically doesn't report figures for the other executives.

--With assistance from Anders Melin

To contact the reporter on this story: Laura J. Keller in New York at lkeller22@bloomberg.net.

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, David Scheer, Steven Crabill