Wells Fargo & Co. confirmed Friday that the bank could experience losses reaching $3.3 billion in its attempt to resolve its customer-account scandals.
The bank said in a second-quarter regulatory report that its June 30 estimate of projected maximum losses is 65 percent higher than the $2 billion estimated March 31.
Separately on Friday, the bank announced a $108 million settlement for another misstep, this time involving refinanced loans affecting the federal Veterans Administration.
According to the bank’s first-quarter report, it was sued in March 2006 by two plaintiffs in federal court in Georgia on behalf of the federal government.
The plaintiffs accused Wells Fargo of charging “impermissible” closing or origination fees to borrowers under a U.S. Department of Veteran Affairs’ loan guaranty program, and then making false statements to the VA concerning such fees in violation of the civil False Claims Act.
Chief Executive Timothy Sloan released Friday an employee memo in which he said the bank has customer account issues “that are newer to the public,” but have been worked on internally.
Sloan took over as chief executive in October following the abrupt retirement of John Stumpf as chairman and chief executive, a major ripple effect from the initial customer fraudulent account scandal that affected more than 2.1 million customers and required a $185 million settlement.
The bank disclosed in Friday’s regulatory report it expects to validate the number of potentially unauthorized accounts by Sept. 30. It said the review that runs from 2009 through September 2016 “may lead to a significant increase in the identified number of potentially unauthorized accounts.”
“However, we do not expect any incremental customer remediation costs as a result of these efforts to have a significant financial impact on the company.”
Sloan cited as an example of a newer issue a regulatory review “into actions we took to freeze, and in many cases close, consumer deposit accounts after detecting suspected fraudulent activity (by third parties or account holders) that affected those accounts.” The review is being done by the Consumer Financial Protection Bureau.
In the regulatory filing, Wells Fargo cited the decision to raise the projected high end of losses “to a variety of matters, including its existing mortgage-related regulatory investigations.”
The bank cautioned that “based on information currently available, advice of counsel, available insurance coverage and established reserves, Wells Fargo believes that the eventual outcome of other actions against Wells Fargo and/or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on Wells Fargo’s consolidated financial condition.”
“However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to Wells Fargo’s results of operations for any particular period.”
Sloan told employees that “no doubt, other work lies ahead. Because there is so much interest in the work we are doing to rebuild trust, we can expect more headlines as we fulfill our commitment to identify and fix problems and make things right for our customers.”
“Today’s quarterly report, as an example, identifies issues, even if the final conclusions or outcomes for many are unknown at this time.”
The VA loans involved in the $108 million settlement are known as interest rate reduction refinance loans.
The suit, which was unsealed in 2011, sought compensation for the federal government over guarantee claims paid by the VA after those loans defaulted.
The bank denied the allegation in the settlement, but agreed to pay the $108 million “to resolve the claims.”
In 2011, Wells Fargo settled a separate class-action lawsuit by allowing all veterans who received a VA interest rate reduction refinance loan between Jan. 20, 2004, and Oct. 7, 2010, to obtain compensation regardless of whether there were indications the fees in question had been paid by the customer.
Wells Fargo said the $108 million settlement cost already had been accrued.
“More than six years ago, when questions about fees on Veterans Administration refinance loans were raised, we resolved those concerns by improving our internal controls and made compensation available to VA customers who closed a refinance before that time,” Sloan said.
“Settling this longstanding lawsuit allows us to put the matter behind us and continue to focus on serving customers and rebuilding trust with our stakeholders.”
Wells Fargo has been the nation’s largest VA lender over the past several years, having funded nearly 23 percent of all VA loans guaranteed since 2001.
“We are committed to serving the financial health and well-being of veterans, and we will continue to honor that commitment now and in the future,” Sloan said.
Tony Plath, a finance professor at UNC Charlotte, said the VA loan settlement will serve as one more example that could “justify the Fed’s need to act in making an example of Wells Fargo for the rest of the banking industry, and the public at large, that its behavior is simply intolerable for a large and supposedly consumer-focused financial institution.”