Wells Fargo: Fed order could cut $400M from bank's profit this year

Federal Reserve Chair Janet Yellen smiles before giving a speech during a conference at Brown University in Providence R.I. Yellen's last day at the Fed is Friday Feb. 2 2018

"We can not tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again", outgoing Fed Chair Janet Yellen said in a statement.

Wells Fargo says Federal Reserve sanctions on the bank after a fake accounts scandal and other problems could reduce the embattled bank's profits by as much as $400 million this year.

The bank prioritised growth over ensuring effective risk management and "the enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely", Yellen said in what was perhaps her last official act as Fed chair.

Janet Yellen leaves the with the economy clicking, the stock market humming and the central bank on a clear path away from the emergency policies it put into place to help rescue the USA from the deep throes of the financial crisis. The company kept coming under fire after revealing that auto-loan clients were forced to pay for unwanted vehicle insurance and that mortgage customers were improperly charged fees. Three current board members will be replaced by April, and a fourth will depart by the end of the year. The announcement came hours before Yellen's term was to expire, hitting the biggest bank in her former district.

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The Fed cited not only the millions of customer accounts Wells Fargo opened without authorization but also more recent revelations that the bank charged hundreds of thousands of borrowers for unneeded guaranteed auto protection or collateral protection insurance for their automobiles.

Once the Fed approves those plans, Wells will hire third-party consultants to review them and monitor its progress until the regulator is satisfied.

"We want to have this cap lifted as soon as possible".

"Wells Fargo has its work cut out for it over the next few years".

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In addition to the growth restriction, the Board's consent cease and desist order with Wells Fargo requires the firm to improve its governance and risk management processes, including strengthening the effectiveness of oversight by its board of directors.

Wells Fargo paid $185 million to resolve the initial sales scandal.

"The company's absence of viable oversight and control of consistence and operational dangers contributed in material approaches to the significant damage endured", the Fed's supervision executive, Michael Gibson, said in a different letter to the board.

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