$185M Wells Fargo fine pales next to profits

When Wells Fargo was hit last week with $185 million in fines after thousands of its employees were caught setting up fake accounts that customers didn't ask for, regulators heralded the settlement as a breakthrough.

The Consumer Financial Protection Bureau noted that the $100 million it will collect as part of the deal was the agency's "largest penalty" ever. The head of the Office of the Comptroller of the Currency, a banking regulator, said its $35 million penalty would "demonstrate that such practices will not be tolerated and banks will be held responsible." "This is a major victory for consumers," said Los Angeles City Attorney Mike Feuer, touting the $50 million that the city extracted from the bank.

But the fines being levied against Wells Fargo pale in comparison to the bank's yearly profit - more than $20 billion in 2015.

They are also less than the $200-plus million that the stock in the company held by the company's chief executive, John G. Stumpf, is worth. The fines are also not much greater than the $125 million that one of its top executives, Carrie Tolstedt, will walk away with when she retires this year. A 27-year veteran of the bank, Tolstedt ran the community banking division where regulators said aggressive sales goals fueled illegal behavior by bank employees.

As first noted by Fortune Magazine, the retirement package for Tolstedt, 56, is expected to reach nearly $125 million, including thousands of shares of Wells Fargo stock, options, and restricted shares. Tolstedt has earned a base salary of $1.7 million for at least the last four years, according to Securities and Exchange Commission filings.

According to regulators, thousands of Wells Fargo employees were allegedly involved in a widespread scheme to reach aggressive sales goals - and earn bonuses - by creating two million accounts, including credit cards, that customers didn't authorize. The employees created phony email addresses to enroll existing customers in online banking services, for example, and issued them debit cards they didn't request. Customers were then often hit with assorted fees for accounts they didn't know they had, the regulators said.

Wells Fargo said it has dismissed 5,300 workers, including some managers, during the last five years for such illegal practices. They all worked in Tolstedt's community banking division, the company said.

At the center of the bad behavior appears to be an effort by the bank to persuade customers to sign up for multiple products, known as "cross selling." A customer who opened a checking account would be encouraged to consider a debit card or savings account. This strategy is common in banking industry, but Wells Fargo is considered particularly aggressive.

"There are two possibilities: Customer abuse was part of the business model, in which case lots of high-ranking people need to go to prison," said Bart Naylor, a financial policy advocate for Public Citizen. "Or the bank is too big to manage, and folks high up don't even know that laws are being broken a few levels down."