Wells Fargo jobs in Des Moines 'stable' after Fed crackdown, experts forecast

The Federal Reserve's recent action against Wells Fargo sparked national headlines, slashed stock values and elicited shock and anger among analysts. But banking experts predict the crackdown will have little to no impact on the bank's Iowa workforce.

As one of her last moves in office, outgoing Fed Chair Janet Yellen issued a cease-and-desist order demanding Wells Fargo improve its governance, risk management and board oversight after a scandal in which bank employees created millions of unauthorized consumer accounts.

It limits the bank's future growth by prohibiting Wells Fargo from growing total assets beyond their levels at the end of 2017. That limitation is in place until the bank shows the Fed it has made reforms.

One bank analysts described the sanction as a "shocking penalty" to the Los Angeles Times, while a Wall Street Journal editorial warned that "its arbitrary nature should cause shivers in bank boardrooms everywhere."

"This is a penalty that’s never been imposed on a bank except for serious credit and soundness issues," said Robert Miller, a University of Iowa law professor with expertise in banking law. "This is a very unusual thing to do especially to a very large bank."

Miller suspects the Fed's action was mostly political, designed to appease the likes of Sen. Elizabeth Warren, a Massachusetts Democrat who has called for a criminal investigation into the bank's problems.

"I think everybody understands they’re not going to actually hurt the bank, but they intend to humiliate them," Miller said. "It's more symbolic than anything else. But it is a hell of a symbol."

With some 14,000 employees, Wells Fargo is the single largest private employer in the Des Moines metro area. The bank's home mortgage division is based here.

Miller expects the Iowa jobs to weather the short-term limitations imposed by the Fed.

"They’ll be relatively stable. This is not a long term thing," he said. "They’ll be out from under that in six months to a year. They’re not going to fire people today knowing that."

Bank remains 'open for business'

San Francisco-based Wells Fargo has predicted the federal sanctions will cost it $300 million to $400 million in 2018 profits. Yet CEO Tim Sloan has remained bullish on the bank's ability to serve customers.

"While operating under this constraint, we are open for business and we will continue to serve our customers’ financial needs including saving, borrowing and investing," he said on Feb. 2.

"I want to repeat, we are open for business."

The bank had already launched its own series of remediation efforts. The company changed board directors and fired more than 5,000 executives and employees for the fraudulent accounts. Former CEO John Stumpf resigned at the height of the scandal and the bank has already faced millions in fines from regulators.

Aside from the thousands employed in its West Des Moines-based home mortgage division, Wells Fargo employs thousands of other central Iowa workers in legal, technology, community banking, business banking, human resources and finance.

Steve Carlson, an Iowa-based Wells Fargo spokesman, said the bank remains "financially strong and flexible" despite the limitation on asset growth.

“This consent order in no way affects our ability to provide customers with the best service and advice needed to help them succeed financially," Carlson said. "We are a better bank today than we were a year ago, and we will continue the work that is underway to ensure we identify and resolve risks through oversight, governance and new policies."

'This company is shrinking'

Wells Fargo weathered the Great Recession better than most other large banks. It continued opening branches while other institutions sought bailouts, closed locations and divested in many lines of business, said Dick Bove, a banking analyst at the Vertical Trading Group.

"You have to assume that Wells Fargo is now going to go through the process 10 years later than all of its peers went through in 2007," he said.

With a limit on how much its overall assets can grow, Bove expects the bank to sell off some smaller business lines or loan portfolios. It could divest in auto lending. Or, it might close some branches. Shrinking in some areas could help it grow in others without breaching the Fed's limit.

"Whether they eliminate businesses operating out of Des Moines or not, I don’t know." he said. "My view is that this company is shrinking."

Yet, he thinks the Des Moines-area workforce might have some insulation: Bove expects the nation's home mortgage market to perform "relatively strong" this year, likely keeping that division of Wells Fargo safe from major changes.

"I think Wells Fargo is not about to step away from mortgages or cut in that sector," he said. "It’s a core business and they’re not going to walk away from it."

Bove believes Wells Fargo weathered the recession partly because of the bank's decentralization: That organization meant each business unit contained its own human resources, legal and risk management officials, spreading potential risks across the company. But now, the Fed wants the bank to consolidate and centralize its leadership, managing risk management centrally.

"This is all political," Bove said of the Fed's action. "There is no economic impact from what the Fed has said."