DBRS said the one-notch rating downgrade reflects operational and management missteps at the company and resultant reputational damage stemming from ongoing issues surrounding the company’s sales practices, as well as practices impacting other consumer-related areas. Simply, over a number of years, some retail customers received, and were potentially charged for, unrequested or unnecessary products, evidencing a lack of controls, including the inability to properly monitor employees engaged in sales-related activities, an initial lack of management intervention, as well as issues surrounding controls and monitoring of third-party vendors.
As the company works to address the issues, expenses have been elevated and revenue growth in some areas has softened. Additionally, negative headlines are likely to remain an ongoing risk, as the company faces heightened regulatory scrutiny, litigation, as well as additional investigations and the ongoing challenge of evolving the culture of the organization. Hence, a degree of uncertainty still hangs over the company.
Despite the downgrade, DBRS said Wells Fargo remains among the highest rated banks reflective of its highly scaled and diversified franchise, predictable and varied earnings, strong capital levels and ample liquidity as commensurate with its ratings and stable trend.
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