How illegal schemes were used to pad Wells Fargo’s profits

A report issued last week by Wells Fargo is no bodice-ripper, but it does have moments of guile, intrigue and betrayal to match the seediest pulp fiction.

Nearly a third of the fraud described in the report was concentrated in California, which, when the bad behavior began, was still reeling from earlier actions of a different set of rogue bankers whose practices led to a host of problem from the subprime loan meltdown and taxpayer bailouts to the mortgage default crisis for which the Northern San Joaquin Valley was ground zero in 2008.

The 110-page volume, commissioned by the bank’s board of directors, is part of an apology tour the bank has been conducting since late last year. Wells now seeks to be the “transparent bank.”

The report attempts to explain how managers at a Big Four bank could have cultivated thousands of dishonest underlings who then created as many as 2 million bogus accounts and engaged in other chicanery. Branch personnel at Wells Fargo have been accused of preying on non-English speakers, young adults and the elderly. It also hoodwinked other pitifully gullible members of society like professional investment managers and writers of popular business management books.

The report whitewashes some of the abuses.

For example, it describes a practice of wiring money in and out of accounts without the knowledge of depositors as “simulated funding.” Less kindly observers might call it wire fraud.

The report also references employees “opening unauthorized accounts” to pocket bonuses. Here, too, less kindly observers might be tempted to call the practice identity theft.

The report paints a picture of fraudsters ravaging the bank like a plague of locusts.

We meet John Stumpf, Wells Fargo’s former chairman and chief executive officer; and Carrie Tolstedt, a bespectacled former senior banking executive. Both shoulder much of the blame in the pages of the report. The bank’s board is now trying to claw back millions in bonuses promised to the two, though it’s unlikely either will have to pay back the millions already paid them over many years as a result of the institutionalized petty larceny.

Before the revelations, Wells was known for its skill in cross-selling all manner of accounts, services, credit cards and mortgages. In 2009, it claimed it had reached a point of getting each retail customer to subscribe to an average of nearly six Wells Fargo products. That claim now seems fishy.

In 2009, America was more than a year into the Great Recession. People were upset with their banks. No one had much brand loyalty. It’s just not believable.

The report finds the fraud disproportionately affected California, Arizona and Florida – states heavily hit by the subprime meltdown. At Wells, the Golden State had the highest number of sales practice-related allegations (27.9 percent of the total) and terminations coupled with resignations (28.2 percent of the total).

The report is silent on the role junk fees have come to play in banking since the end of the Great Recession.

As a result of Dodd-Frank reforms and unresolved problems with Fannie and Freddie, fees have increasingly become the raison d’être of big banks as lending becomes more problematic. In 2016. three of America’s biggest banks – JPMorgan Chase, Bank of America and Wells Fargo – are getting rich on fees. They raked in more than $6.4 billion from ATM and overdraft fees, according to an analysis by CNNMoney and S&P Global Market Intelligence.

That’s up almost $300 million from the previous year.

Meanwhile, a wave of investigations continues. In March, the Wells Fargo reached a $110 million settlement over the creation of the fake accounts. Though the accounts were fake, the fees they generated on unsuspecting depositors were all too real.

Moreover, the fraud cost ordinary people countless hours trying to identify and unwind accounts.

Wells Fargo ended up firing 5,300 employees (averaging as many as 377 fake accounts each) and launched its mea culpa tour.

In the background, U.S. banks push for more ebanking, incentivize direct-deposit programs and would like to eliminate legal tender from transactions wherever possible. In places like Sweden, this is happening.

From 2005 to 2015, the total value of ATM withdrawals in Sweden fell by 47 percent. During the same period, card payments increased by about 50 percent. One statistic shows that cash transactions made up barely 2 percent of the value of all payments in that country in 2015.

In a government study in the U.K., researchers found cash was only the second-biggest threat for criminal activities like money laundering. The bigger threat, according to researchers, was the banks themselves.

Jeremy Bagott, a former journalist, writes about finance and land-use issues in the state. He wrote this for The Modesto Bee.