Bank Watch

Reported downgrade of key Wells Fargo rating a big blow to bank

Pedestrians pass in front of a Wells Fargo branch in New York on July 12, 2016.
Pedestrians pass in front of a Wells Fargo branch in New York on July 12, 2016. Bloomberg

Wells Fargo is expected to receive a significant downgrade on a closely watched scorecard for community lending, according to news reports Wednesday.

The Office of the Comptroller of the Currency is set to issue Wells Fargo a “needs to improve” tag under the Community Reinvestment Act, a change that would give regulators greater say on day-to-day matters like opening new branches, Reuters reported. Sources with knowledge of the plans said the ruling is due by early January, according to Reuters.

The move would mark a two-notch downgrade from the “outstanding” rating Wells Fargo has held since 2008 for its performance under the act. Among other things, the 1977 law prohibits banks from “redlining,” the practice of denying home loans to neighborhoods based on their racial, ethnic or income makeup.

A lowered score could also further stain the image of Wells Fargo as it tries to repair its reputation in the wake of a major fake-accounts scandal. Wells Fargo’s new score would be the second-lowest of four possible ratings the OCC gives banks.

Reuters did not provide a reason for the downgrade, and a spokesperson for the OCC declined to comment.

A Wells Fargo spokesperson declined to comment on “speculation” but noted the bank “takes its commitment to low- and moderate-income communities very seriously.” The spokesperson also said that, over the past four years, Wells Fargo has provided nearly $500 million in grants to charitable organizations focused on community development in distressed communities.

On Wednesday, the California Reinvestment Coalition, which advocates for fair and equal access to banking for low-income communities and communities of color, called the downgrade “appropriate.”

“Given the long and growing list of enforcement actions against Wells Fargo for harmful and illegal practices, we expected at least a double downgrade,” Paulina Gonzalez, executive director coalition, said in a statement.

The coalition also said it was “deeply troubled” by the OCC’s nearly four-year delay in giving Wells Fargo a new CRA rating following its 2012 exam.

“Would the bank have engaged in so many harmful activities if regulators had awarded this ‘needs to improve’ in a more timely manner?” the coalition said.

The OCC was among authorities that fined Wells Fargo in September a combined $185 million over the accounts scandal. Last month, in a surprise move, the regulator announced fresh limits on Wells’ activities, including restricting the bank’s ability to award departing executives severance payments.

Wells Fargo CEO John Stumpf faced another round of questioning Thursday by the House Financial Services Committee over his bank's creation of fake accounts. "I am fully accountable for all unethical sales practices in our retail banking business,"

Ken Thomas, who has advised regulators on Community Reinvestment Act issues, called Wells’ reported double downgrade “extremely rare, especially for a big bank.”

“They’ll be the biggest bank to have had a double downgrade, but not the only one,” Thomas said.

Other large banks have also been given lower Community Reinvestment Act ratings in recent years.

Bank of America in 2014 lost its “outstanding” rating, the highest score, after the OCC downgraded the Charlotte-based bank one notch to “satisfactory.” In granting the lower score in a report spanning April 2009 to the end of 2011, the OCC cited evidence of discriminatory or other illegal credit practices.

In 2013, New York-based JPMorgan Chase & Co. fell one notch from “outstanding” to “satisfactory.”

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