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Wells Fargo quashes hope that its scandals are nearly resolved

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Wells Fargo’s finance chief was promising analysts they would be kept abreast of the bank’s efforts to resolve scandals when his new boss chimed in.

“I just want to be clear, I’m not suggesting here that any of these public issues will be closed this year,” Chief Executive Officer Charlie Scharf said earlier this month. “The time frames will be driven by when we accomplish that work and when the regulators are satisfied by it.”

It was a telling moment in Scharf’s first earnings call since taking over a bank mired in revelations about customer abuses. Two years after the company launched an ad campaign called “Re-Established” to announce it was ready to start anew, a dark reality is sinking in: It has a long way to go.

“This has dragged on far longer than we would’ve hoped,” Piper Sandler analyst Scott Siefers said in an interview. “This is a cultural issue as much as it is anything else, so I think most of us haven’t seen something of this order or fashion before. It’s new for all parties.”

The Office of the Comptroller of the Currency last week announced civil charges against eight former senior executives, including ex-CEO John Stumpf. Stumpf accepted his penalties while five of the others are fighting the accusations, raising the prospect of keeping the firm’s missteps in the news for years.

After the OCC unveiled a 100-page complaint laced with previously confidential emails, internal memos and testimony, Scharf pledged Wells Fargo will conduct its own review.

The firm has yet to reach settlements with the U.S. Department of Justice and the Securities and Exchange Commission after setting aside more than $3 billion for litigation in the second half of last year. Justice Department staff also scrutinized the actions of individual executives, people familiar with the matter have said. And in its quarterly filings, the bank lists an array of other open-ended probes, investigations and sanctions including a Federal Reserve-imposed growth cap.

It’s a strikingly long tail for a scandal that began with the 2016 revelation that employees had opened millions of potentially fake accounts to meet sales goals, possibly overcharging customers by a few million dollars. That unleashed a public and political backlash that has kept Wells Fargo in a harsh light ever since.

“There’s this sort of free-floating anger and fury that’s out there in the populace, and anything that sticks its head up that’s a problem that isn’t resolved in the right way, it coalesces,” Davia Temin, founder of crisis consultancy Temin & Co., said in an interview. “That fury is magnificent — it is stunning in its destructive power.”

Mounting political pressure prompted the retirement in March of CEO Tim Sloan, who had replaced Stumpf. Sloan’s exit kicked off a six-month search for an external candidate to “complete the transformation,” as the bank’s chair described it at the time. The board landed on Scharf, who took over in October.

In his first months at Wells Fargo, Scharf held a marathon of meetings with executives, asking them about their businesses. The depth and breadth of his reviews hint at wide-ranging changes.

Scharf’s priority has been fixing relations with regulators that have taken unprecedented steps against the firm. The targeting of former managers is a divergence from enforcement actions after the 2008 financial crisis, from which Wells Fargo emerged relatively unscathed: Few individuals and no top executives were held accountable.

After that crisis, Bank of America spent most of a decade working through probes and litigation linked to bad mortgages, some inherited through takeovers of Countrywide and Merrill Lynch. Citigroup, which leaned on taxpayers to get through the turmoil, created a special unit to work off soured assets and undesirable businesses.

“If you look at Bank of America and Citigroup, they took a minimum of five years to straighten themselves out, and then they took another three or four years to get a program in effect to grow their earnings going forward,” Odeon analyst Dick Bove, who downgraded Wells Fargo to sell from hold last month, said in an interview. “This is no easy task.”

Bloomberg News