Saturday, June 19, 2021

Wells Fargo fires more than 100 workers over abuse of COVID-19 relief funds


Wells Fargo & Co has fired about 100 to 125 employees for unethically availing themselves of coronavirus relief funds, according to a source familiar with the matter.

The bank believes some of its staffers made ‘false representations in applying for coronavirus relief funds for themselves’, defrauding the U.S. Small Business Administration, David Galloreese, head of Human Resources, said in an internal memo seen by Reuters.

It comes a month after JPMorgan Chase & Co dismissed several employees who allegedly misused funds that were supposed to help businesses dealing with the COVID-19 pandemic, the Financial Times reported.

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About 500 applied for the loans but dozens did so illegitimately, a review found.

The abuse was tied to the Economic Injury Disaster Loan (EIDL) program which is done directly with the individual and the SBA.

By contrast the Paycheck Protection Program is handled via a bank.

The Wells Fargo employees’ communications with the SBA were done outside their roles at the bank, the memo said, adding that Wells Fargo will cooperate fully with law enforcement.

‘These wrongful actions were personal actions, and do not involve our customers,’ the memo continued, adding that  the company has ‘zero tolerance for fraudulent behavior.’

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Galloreese wrote that they are continuing ‘to look into these matters’ and ‘if we identify additional wrongdoing by employees, we will take appropriate action.’

The SBA had urged banks to look into suspicious activity involving their customers, including their own staff, as its inspector general found $250million ineligible payments and $45.6million duplicate payments.

It’s widely believed the SBA has been defrauded across industries too but unlike other businesses, banks are able to look into whether their employees had money from the SBA deposited into their accounts.

Bloomberg Business Week reported in August that $1.3billion of the funds could have been taken improperly. The focus of reviews has been on $10,000 advances that don’t have to be repaid.

It’s another scandal for Wells Fargo which in 2016 became the subject of a cross-selling scam where employees under pressure to hit targets opened millions of fraudulent savings and checking accounts with the knowledge of their customers.

They settled a $110million class action suit in January 2017 but then that June another scandal emerged where the bank was accused of modifying loans so customers ended up paying back more than agreed.

In the months following it emerged they charged auto insurance to 570,000 customers who didn’t need it, overcharged small businesses for loans, wrongly fined mortgage customers and repossessed cars and sold dangerous investments to brokerage customers.

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The Federal Reserve said the bank wasn’t allowed to grow its assets until it cleaned up its act and so Wells Fargo overhauled its board of directors in 2018.

Today it was reported that JPMorgan Chase, Citigroup, Wells Fargo and Bank of America saw their profits partly recover in the third quarter from the depths of the coronavirus-caused recession earlier this year.

The turnaround stems mostly from improvements in the US economy that allowed these big banks to set aside less money to cover potentially bad loans – $5 billion in the third quarter versus $33 billion in the second quarter.

‘It’s the same story at every bank in the industry right now: lower credit costs are helping restore profitability,’ said Kyle Sanders, an analyst who covers the financial services industry for Edward Jones.

The banks have benefited from massive government stimulus to keep the US economy afloat.

The banks received fees for implementing the government’s Paycheck Protection Program, a $669 billion program that gave forgivable loans to small businesses to keep them paying their employees.

Individual Americans got $1,200 stimulus checks, which researchers have found were used to either pay off debts or shore up savings.

Further, Congress and financial regulators have allowed banks to offer payment forbearance to mortgage borrowers for up to a year without having to mark those loans as bad on their balance sheets.

On top of the stimulus, banks entered into this pandemic the healthiest they’ve been in years and certainly healthier than they were before the financial crisis of 2008.

Capital levels were at historic highs, allowing banks to buy back stock and increase dividends as soon as they could to return excess capital to shareholders.

For the moment, banks either seem to think the worst is over or are holding off from booking additional losses.

JPMorgan set aside $611 million to cover potentially bad loans in the third quarter, a fraction of the $10.47 billion the bank set aside to cover bad loans in the second quarter.

On Wednesday, Bank of America said it set aside $1.4 billion to cover potentially bad loans, far less than the $5.1 billion it set aside three months earlier.

Despite the banks posting better profits, investors have sold bank shares this week. The KBW Bank Index, which measures the value of the nation´s 24 largest banks, is down 4% in two days.

‘As we look forward, the trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain,’ Wells Fargo CEO Charlies Scharf said in a statement.

Scharf joined Wells Fargo last year as part of a clean-up following its major scandal.

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