Chapter 7 Bank’s Trust Department

What is a Trust?

A trust is a fiduciary relationship (A fiduciary is a person or organization that acts on behalf of another person or persons to
manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust) in which one party, known
as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the
beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make sure those assets are
distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce
inheritance or estate taxes.

What Is a Trust Company?

A trust company is an entity, often a division of a commercial bank, that can serve as an agent or trustee to either a personal
or business trust. Rather than choosing an individual to act as trustee, a trust company can fill the same role. The company
will manage the trust and oversee the eventual transfer of assets to beneficiaries.

What Is a Trust department?

A trust department in a bank that administers trusts and guardianships. Trust departments manage trust funds for their
clients and decide what investments to make. Trust departments also may manage assets for businesses, such as
administering pension funds and acting as a trustee for corporate bonds or as a transfer agent. Generally, investments
made by trustees are fairly conservative because they are intended to maintain existing wealth and limit risk.

Bank’s Trust Sub divisions

 Legal Estate Administration, Guardianship, and Administering Trust
- This division would handle matters of legal import, manage and administer properties under trust, act as
executor of last wills and testaments, or administer estates.
 Agency Services
- This division handles agency services such as that of safekeeping, custodianship and escrows.
 Accounting Division
- This division takes care of recording and analyzing all trust transaction.
 Asset Management Division
- This division manages outstanding and foreclosed accounts of both institutional and individual clients.
 Fund Management or Investment Division
- This division is in charge of coming up with products and services offered to its diverse clientele.

Trust Activities of Banks

 To act as trustee for a corporation’s assets under mortgages/ bond issue.
o In a corporate mortgage, the trustee is charged with the responsibility of protecting the mortgagees’ or
bondholders’ interest.
 To act as transfer agent or registrar of stocks and bonds
o The transfer of ownership of stocks and bonds necessitates an accurate record to protect the interest of
the owners.
 To act as guardian of a minor’s interest
o When the property of a minor, through a will or through court order, is left in the hands of bank trustees, it
sees to it that such interest are safeguarded and are properly managed.
 To act as executor of last wills and testaments.
o When the trustor leaves a will, banks assist in the execution of the last will and testaments.
 To act as administrator of estates
o Sometimes, the owner of the property or the court appoint a trustees to take over the management and
administration of his estate.
 To act as depository for escrow deposits, valuables, or other securities
o In some transactions, one party may require the other party to deposit in escrow property or cash to insure
the performance of an obligation.
 To act as assignee, receiver, or depository
 o In case of corporation or individual businesses which are on the brink of bankruptcy or are being
mismanaged, it may be necessary for a third party to take over management to insure the interest of the
creditors.
 To act as an advisor
o The trust department provides expert advice to institutions and individuals in investment decisions.

Kind of Trust
 Individual Trust: Are those which would pertain to trust functions where the welfare and interest of the individual is
safeguarded.
 Voluntary or Living Trust: Under this set-up, the owner transfers the title of the property to a trustee and gives
instructions on how to dispose of the income or how to reinvest the funds.
 Testamentary Trust: When an individual appoints a trustee through a will.
 Insurance Trust: This services are rendered whenever the trust department of the bank is appointed as trustee under
insurance trust agreements.
 Employee Benefit Trust: This involves the creation and design of a plan to provide economic security and benefits to
employees.

Settlor, Trustee, Beneficiary

Settlor / Trustor

The settlor is a person who creates the trust and transfers property to the trustee and causes the trustee to administer and
dispose of such property(trust property) on behalf of the beneficiaries, in accordance with the trust objectives.

Trustee

The trustee is a person who receives the trust property transferred from the settlor and is under the obligation to
administer and dispose of trust property on behalf of the beneficiaries in accordance with the trust objectives.

Beneficiary

Beneficiary refers to a person who receives the distribution of trust income from the trustee in accordance with the terms
of trust.

The beneficiary can be identical to the settlor or can be another person.

The beneficiary does not need to be an existing person. In such cases, a trust caretaker is appointed to protect the
benefits for the beneficiary.

In principle, the beneficiary may not change during the term of the trust, if the terms of the trust otherwise provides, such
provision shall prevail.

What Is a Bank Trust Account?

Why Should I Consider A Bank As A Trustee Of My Trust?

When planning your estate, one of the tools that you might consider is some form of trust. This might be (a) a revocable
trust that you create during your lifetime (the so-called "living trust"), (b) an irrevocable trust that you create during your
lifetime or (c) a testamentary trust, one that is set forth in your will and takes effect upon your death. In any of these instances,
you must consider whom to name as trustee or co-trustees of the trust. The trustee can be one individual, multiple
individuals, an institution (a bank or trust company) or a combination of an institution and one or more individuals. This
article will explore the reasons you might want to consider naming a bank as your trustee or co-trustee (See other articles
about trusts and related topics at this website).

One of the major reasons people are often reluctant to appoint banks as trustees of their trusts is the fear of the bank's fees.
People often act under the delusion that banks only charge fees and if they name an individual as a trustee, that individual
will not take any fees for his or her services. Experience demonstrates that, except where a spouse or a child acts as trustee,
individuals as well as banks do take fees for services. Even children often take fees as well. A "reasonable" fee for an
individual trustee is often no different than a "reasonable" fee for a bank trustee. Therefore, an attempt to save the trust
from paying fees to the trustee is often a poor reason for rejecting the use of a bank as a trustee. Furthermore, some of the
work included in the scope of the bank trustee's services - such as preparation of annual income tax returns - would result
in additional fees if the individual trustee could not perform the work himself or herself and had to hire an accountant or
other professional to perform that work.

In many cases in which the client selects a bank as trustee, an individual co-trustee is also appropriate. In those cases,
there may be an additional cost because the individual co-trustee receives a fee in additional to the bank's fee. This fee for
the individual co-trustee is generally significantly smaller than the bank's fee.

What advantages might there be from having a bank serve as your trustee?

 Professional Management - actions - investments - record-keeping - tax returns

 Continuity
 Objective Exercise of Discretion
 Avoiding Conflicts of Interest
 Insulation for the Individual Trustees
 Protection Against Misappropriation of Funds

Professional Management - When a bank serves as trustee, people in the bank's trust department manage the trust.
Management of the trust is the full-time job of these people. It is not something they do when not working at their real full-
time jobs; it is not something forced onto them by circumstances or reluctantly done from a sense of moral obligation. The
trust officers are professional trustees, experienced in the requirements and appropriate procedures for administering a
trust. An individual trustee, no matter how knowledgeable, is generally an "amateur" trustee. The bank brings experience
and knowledge in investments generally and trust investments in particular. Will the individual trustee know what
investments are appropriate for a trust? Will the individual trustee understand the distinction between income for tax
purposes and income for trust purposes? Will the individual trustee keep current on investments, taxes, the law of trusts,
etc.? Will the individual trustee know how to keep appropriate records for the trust? The bank trust officers will be aware of
all these items and will act accordingly.

Continuity - Will the individual trustee that you select be available to serve at the appropriate time and will he or she
continue to be available during the entire term of the trust? If the trust is for the benefit of your young children and is to last
for many years, will your contemporaries be too old to serve as trustees? Do you have enough individuals in whom you
have confidence to name alternate trustees in addition to the original trustees? If you name a bank as a trustee, although
the particular individual trust officer may change from time to time, the "trustee" will always be there.

Objective Exercise of Discretion - It is often difficult to be objective, particularly where different beneficiaries have different
and opposing interests or where emotional relationships are involved. Your trust might be structured to provide income to
your spouse for life with the remainder to pass to your children. Your spouse might want the principal invested to maximize
income - for example, exclusively in tax-free municipal bonds. Your children might want the principal invested to maximize
growth - for example, exclusively in equity securities. This might be a more contentious issue where there is a second
marriage and there are adult children from the first marriage. Your trustee has to exercise discretion to reach a fair
compromise between the interests of all beneficiaries. Will your individual trustee be up to this task? What if your trustee
feels closer to your children than your spouse - will your spouse be treated fairly or will the emotional relationship result in
unfair subjective exercise of the trustee's discretion? The bank trust department deals with these types of decision every
day. The decisions can still be difficult but the bank is well-equipped to handle them. It might be appropriate under certain
circumstances to seek to convert the trust to a unitrust to eliminate this conflict between the different beneficiaries (See
related article about trusts for an explanation of a unitrust). Will your individual trustee be aware of that possible alternative
or know how to evaluate such a decision or how to bring it about? Professional trust personnel are sensitive to these issues.

Avoiding Conflicts of Interest - An individual trustee might have an inherent conflict of interest if he or she is also a
potential beneficiary. Consider the following situation, for example. Assume that you name your brother George as the
trustee for your child. Also assume that the trust provides that if your child does not survive the term of the trust, George's
children become the beneficiaries. Thus, the more trust funds that George spends on your child, the less that might be left
for his own children if your child dies. This is a classic conflict of interest. George might be inclined to be frugal when using
trust funds for your child, contrary to your intentions because he is also considering the interests of his own children. The
bank trustee would have no such conflict.

Insulation for the Individual Trustees - Sometimes an individual trustee is placed in the difficult position of having to turn
down the request of a beneficiary. This can be even more awkward when the trustee is also acting as the guardian of a
minor beneficiary of the trust. For example, assume that you name your sister Mary both as the guardian of your minor
children and as the trustee of his or her trust, and assume further that one of your children makes a request for money from
the trust for a purpose that your sister deems inappropriate. It might be easier on your sister if she can respond by pointing
out to the child that the bank trust officer must also approve the request. Having the bank as co-trustee, takes some of the
"heat" off the individual trustee.

Protection Against Misappropriation of Funds - If you set up a trust for your children and if, despite your best efforts to
select an honest trustee, the individual trustee steals money from your trust, will the beneficiaries - your children - be able
to recover the stolen funds? If the trustee has spent all the money and does not have funds of his or her own to replace the
missing funds, your children might never see the money. Selecting a close relative is no guarantee of honesty. There are
numerous examples of individual trustees who have stolen money. If a bank is named as trustee, the likelihood of
misappropriation is reduced because of checks and balances in the administration of the trust. However, even if there is a
dishonest trust officer, the bank - presumably a financially secure institution - will be standing behind its trust officer and
make good any losses that result from the dishonesty of the trust officer.

Summary - Not every trust is a good candidate to have a bank serve as trustee. Nevertheless, a person considering using
a trust as part of her or his estate plan should not simply dismiss the notion of naming a bank as trustee or co-trustee.
There are often many good reasons to name a bank as trustee. A careful consideration of both the advantages and
disadvantages should be made before any decision is made. When discussing the use of a trust with your lawyer, you
should also discuss these advantages and disadvantages before making a final decision.

People dream of “making their money work for them” instead of “them working for money”. This means that you’re
enjoying life instead of living life for the sake of money. When your money earns you more money, this is called passive
income, which is the opposite of active income. Active income is money derived directly from the work you put out.
Examples of active income are your wages, tips, and commissions. On the other hand, passive income is income derived
from minimal participation on your part. Examples of passive income are the returns you get on your investments, rent
payments, and payments you get from books and other informational products.

Unlike rentals where you need a large starting capital to own real estate or taking the time to write a book first before you
can publish, sell, and then reap the rewards, investments allow you to earn passive income without the large starting
capital needed in real estate or the time and effort in writing an informational product. If you want to invest but have barely
any knowledge on where to invest, one of the best options is through unit investment trust funds (UITFs).

What are UITFs?

A unit investment trust fund (UITF) is a pool of investments funded by various investors. You can think of one UITF as a
basket with different fruits. One basket may be filled with mangoes, the other with pineapples, and a third is a combination
of mangoes and pineapples. In the case of a UITF, various holdings (instead of fruits) make up the UITF. As with a fruit
basket wherein you’re in charge of picking which fruits to buy, professional fund managers handle and manage the
holdings of UITFs. Since these professionals actively manage the fund, you can sit back, relax, and make your money
work for you.

As an investor, the only major concern you have is to determine which UITF is best suited for you. There are different
types of UITFs, and where you invest in depends on your risk profile. Are you scared of risk or the opposite? Below are
the different types of UITFs and when to pick each one:

What are the types of UITFs and which should I pick:

1. Money Market UITFs

Many market UITFs are composed of special deposit accounts and time deposits which mature at a specific date (usually
a year or less). The yield you’ll get from money market UITFs are higher than what you’ll get from the interest in your
savings account.

When should I pick this? Money market UITFs are suitable for conservative investors who don’t want to expose
themselves to risk. Even though UITFs, including money market funds, are not insured by the Philippine Deposit
Insurance Corporation (PDIC), money market UITFs are still considered much safer than other types of UITFs.

What are the best performing money market UITFs (October 30, 2014-2015)?

 1.80% – BDO Institutional Cash Reserve Fund

 1.74% – DBP Unlad Kawani Money Market Fund
  1.72% – DBP Unlad Pamahalaan GS Money Market Fund

2. Bond UITFs

Bond UITFs are composed of both government (fixed rate treasury notes (FXTNs) and retail treasury bonds (RTBs)) and
corporate bonds with longer maturity dates than money market funds. Bonds are considered ‘IOU’s (‘I owe you’) since
they are debts where the lender (you) lends money to a borrower (government or corporation). Governments and
corporations take on debt in the form of bonds to fund projects that will drive the entity’s growth.

When should I pick this? Bond UITFs are suitable for moderately conservative investors who want to take on minimal risk
and experience higher returns than the ROIs from money market UITFs.

What are the best performing bond UITFs (October 30, 2012-2015)?

 21.26% – SB Peso Bond Fund

 18.89% – AUB Peso Investment Trust Fund
 17.45% – BPI Odyssey Tax-Exempt Peso Fixed Income Fund

3. Balanced UITFs

Balanced funds are composed of both conservative securities (SDAs, FXTNs, bonds) and riskier ones such as stocks.
Using the fruit basket example earlier, balanced funds are likened to a fruit basket with both mangoes and pineapples – a
combination of items, or in UITFs, a combination of holdings.

When should I pick this? Balanced UITFs are suitable for moderately aggressive investors who are willing to take on more
risk by investing in stocks but at the same time want to minimize risk by including more conservative securities such as
bonds and SDAs.

What are the best performing balanced UITFs (October 30, 2010-2015)?

 55.55% – SB Peso Asset Variety Fund

 47.89% – UCPB Balanced Fund
 34.00% – BPI Balanced Fund

4. Stock or Equity UITFs

Equity UITFs are composed of 100% stocks. Unlike investing in the stock market where you’ll buy stocks individually and
create your own stock portfolio, in equity UITFs, you already have a pool of stocks including some of the Philippines’
largest corporations such as Ayala Land, Inc. (ALI: PS), SM Prime Holdings, Inc. (SMPH: PS), and Phil. Long Distance
Telephone Co. (TEL:PS) among others.

When should I pick this? Equity UITFs are suitable for aggressive investors who are willing to take risks to experience
much larger yields but do not have the time and knowledge to invest in individual stocks.

What are the best performing equity UITFs (October 30, 2010-2015)?

 73.36% – SB Peso Equity Fund

 63.52% – UCPB Equity Fund
 61.30% – AB Capital Equity Fund

How to subscribe to a UITF

You can go to your local branch and tell the bank representative that you want to invest in UITFs. The representative will
ask you to answer a Client Suitability Assessment test to determine which type of UITF is best suited for you according to
your risk tolerance. You will also be asked to fill up an application form and present a valid ID. If you’re opening a UITF or
investment account in the same bank that you have a savings or deposit account (joint accounts are not considered), you
can subscribe or buy more UITF units via your online account provided that your savings or deposit account has enough
funds. Some banks also offer regular subscription plans where the money from your deposit account is automatically
transferred to your investment account on regular basis. You can read more on this by clicking the link below.
How do I make money from UITFs

For UITFs, you earn money when you sell your UITF at a higher rate than when you bought it. The price of one unit of a
UITF is expressed in Net Asset Value Per Unit, or NAVPU. This means that if you want to buy 5,000 shares of UITF Abc
at Php 1.00 a unit, you need to invest Php 5,000. After X years, you learn than the NAVPU of UITF Abc increases from
Php 1.00 to Php 2.00 a unit. Your shares are now worth Php 10,000 instead of Php 5,000. That’s 100% gain. That is how
you earn in UITF investing.

Mutual Funds vs UITFs – Similarities and Differences: Advantages and Disadvantages

What’s the difference between a mutual fund and UITF? Which is better – investing in UITF or investing in Mutual Fund?
Because many readers were asking about mutual fund vs UITF from my previous posts about stock market and trust
funds, I’m sharing here the similarities and differences of the two together with the advantages and disadvantages. I

A mutual fund is a type of investment wherein you join other investors and corporations to form a massive fund
which will be handled by an expert/professional who is called fund manager for diversified portfolios of stocks,
bonds, securities, money markets and other mutual funds. In MF, you buy shares of the investment company thus
that makes you a shareholder and gives you shareholder’s right including voting power and opportunity to receive
dividends.

UITF (Unit Investment Trust Fund) is also a type of investment where you join other investors and entities to form
a Trust Fund which will be handled by Trust expert/professional for diversified portfolios of stocks, bonds, securities,
money markets and other funds. In UITFs, you buy units of investment in the fund thus you will earn from the gain
or loss resulting from the fund performance. Unlike MF, it won’t make you shareholder of the company.

Similarities of Mutual Funds and UITF:

 Both funds are pooled and open-ended investments meaning they are pooled by different kinds of funds, people and
companies to be invested and diversified to other investments like stocks, bonds, securities, money market and other
mutual funds and trust funds. They are open-ended investments meaning you can buy or redeem anytime you want.
 Both funds are managed by fund managers who are already experts about investment fund growth, strategies and
meeting target performance.
 Both fund investments are risky in nature however they can give you higher returns and can yield amazing money and
capital growth.
 Mutual Funds and UITFs usually offer the following types of funds and investments:
Money Market Funds –moderate risk; short term

Bond Funds – moderate risk; long term

Equity Funds – aggressive; long term

Balanced Funds – aggressive; long term

 Both funds are not insured by the PDIC because they are not deposit accounts
 ARTICLE ANALYSIS

“Wells Fargo Account Fraud Scandal”

The Wells Fargo account fraud scandal is an ongoing controversy brought about by the
creation of millions of fraudulent savings and checking accounts on behalf of Wells Fargo
clients without their consent. News of the fraud became widely known in late 2016 after
various regulatory bodies, including the United States Consumer Financial Protection Bureau
(CFPB), fined the company a combined US$185 million as a result of the illegal activity. The
company has faced and faces additional civil and criminal suits reaching an estimated $2.7
billion by the end of 2018.

Wells Fargo clients began to notice the fraud after being charged unanticipated fees and receiving unexpected credit or
debit cards or lines of credit. Initial reports blamed individual Wells Fargo branch workers and managers for the
problem, as well as sales incentives associated with selling multiple "solutions" or financial products. This blame was
later shifted to a top-down pressure from higher-level management to open as many accounts as possible through
cross-selling.

The bank took relatively few risks in the years leading up to the financial crisis of 2007–2008, which led to an image of
stability on Wall Street and in the financial world. The bank's stable reputation was tarnished by the widespread fraud,
the subsequent coverage, and the revelation of other fraudulent practices employed by the company. The controversy
resulted in the resignation of CEO John Stumpf, an investigation into the bank led by U.S. Senator and 2020 presidential
election candidate Elizabeth Warren, a number of settlements between Wells Fargo and various parties, and pledges
from new management to reform the bank.

Cross-selling
Cross-selling, the practice underpinning the fraud, is the concept of attempting to sell multiple products to consumers.
For instance, a consumer with a checking account might be encouraged to take out a mortgage, or set up credit card or
online banking account. Success by retail banks was measured in part by the average number of products held by a
customer, and Wells Fargo was long considered the most successful cross-seller. Richard Kovacevich, the former CEO of
Norwest Corporation and, later, Wells Fargo, allegedly invented the strategy while at Norwest. In a 1998 interview,
Kovacevich likened mortgages, checking and savings accounts, and credit cards offered by the company to more typical
consumer products, and revealed that he considered branch employees to be "salespeople", and consumers to be
"customers" rather than "clients". Under Kovacevich, Norwest encouraged branch employees to sell at least eight
products, in an initiative known as "Going for Gr-Eight".

Early coverage
Wells Fargo's sales culture and cross-selling strategy, and their impact on customers, were documented by the Wall
Street Journal as early as 2011. In 2013, a Los Angeles Times investigation revealed intense pressure on bank managers
and individual bankers to produce sales against extremely aggressive and even mathematically impossible quotas. In the
Los Angeles Times article, CFO Timothy Sloan was quoted stating he was unaware of any "...overbearing sales culture."
Sloan would later replace John Stumpf as CEO.

Employees opened accounts without customer consent. In an article from the American Bankruptcy Institute Journal,
Wells Fargo employees reportedly "opened as many as 1.5 million checking and savings accounts, and more than
500,000 credit cards, without customers' authorization. “The employees received bonuses for opening new credit cards
and checking accounts and enrolling customers in products such as online banking. California Treasurer John Chiang
stated: "Wells Fargo's fleecing of its customers...demonstrates, at best, a reckless lack of institutional control and, at
worst, a culture which actively promotes wanton greed."

Verschoor explains the findings of the Wells Fargo investigation shows employees also opened online banking services
and ordered debit cards without customer consent. "Blame is being placed on the bank's marketing incentive plan,
which set extremely high sales goals for employees to cross-sell additional banking products to existing customers
whether or not the customers needed or wanted them." Cross-selling products is not a new practice, but if employees
feel pushed to sell more than is needed, and are incentivized to do so, there is no surprise that unethical practices
began.

In 2010, New York Department of Financial Services (NY DFS) issued the Interagency Guidance on Sound Incentive
Compensation Policies. These policies monitor incentive-based compensation structures, and requires that banks
appropriately balance risk and rewards, be compatible with effective controls and risk management, and that they are
supported by effective corporate governance.

Fraud
Employees were encouraged to order credit cards for pre-approved customers without their consent, and to use their
own contact information when filling out requests to prevent customers from discovering the fraud. Employees also
created fraudulent checking and savings accounts, a process that sometimes involved the movement of money out of
legitimate accounts. The creation of these additional products was made possible in part through a process known as
"pinning". By setting the client's PIN to "0000", bankers were able to control client accounts and were able to enroll
them in programs such as online banking.

Measures taken by employees to satisfy quotas included the enrollment of the homeless in fee-accruing financial
products. Reports of unreachable goals and inappropriate conduct by employees to supervisors did not result in changes
to expectations.

After the Los Angeles Times article, the bank made nominal efforts to reform the company's sales culture. Despite
alleged reforms, the bank was fined $185 million in early September 2016 due to the creation of some 1,534,280
unauthorized deposit accounts and 565,433 credit-card accounts between 2011 and 2016. Later estimates, released in
May 2017, placed the number of fraudulent accounts at closer to a total of 3,500,000.

In December 2016, it was revealed that employees of the bank also issued unwanted insurance policies. These included
life insurance policies by Prudential Financial and renters' insurance policies by Assurant. Three whistle-blowers,
Prudential employees, brought the fraud to light. Prudential later fired these employees, and announced that it might
seek damages from Wells Fargo.

Initial fines and broader coverage

Despite the earlier coverage in the Los Angeles Times, the controversy achieved national attention only in September
2016, with the announcement by the Consumer Financial Protection Bureau that the bank would be fined $185 million
for the illegal activity. The Consumer Financial Protection Bureau received $100 million, the Los Angeles City Attorney
received $50 million, and the Office of the Comptroller of the Currency received the last $35 million. The fines received
substantial media coverage in the following days, and triggered attention from further interested parties.

On Wells Fargo management

The bank fired approximately 5300 employees between 2011 and 2016 as a result of fraudulent sales, and discontinued
sales quotas at its individual branches after the announcement of the fine in September 2016. John Shrewsberry, the
bank's CFO, said the bank had invested $50 million to improve oversight in individual branches. Stumpf accepted
responsibility for the problems, but in September 2016, when the story broke, indicated he had no plans to resign.
Stumpf was subject to a hearing before the Senate Banking Committee on September 21, 2016, in an effort led by
Senator Elizabeth Warren.[23] Before the hearing, Stumpf agreed to forgo $41 million in stock options that had not yet
vested after being urged to do so by the company's board. Stumpf resigned on October 12, roughly a month after the
fines by the CFPB were announced, to be replaced by COO Timothy Sloan. Sloan indicated there had not been internal
pressure for Stumpf's resignation, and that he had chosen to do so after "...deciding that the best thing for Wells Fargo
to move forward was for him to retire...". In November 2016, the Office of the Comptroller of the Currency levied
further penalties against the bank, removing provisions from the September settlement. As a result of the OCC adding
new restrictions, the bank received oversight similar to that used for troubled or insolvent financial institutions.

Stumpf received criticism for praising former head of retail banking, Carrie Tolstedt, upon her retirement earlier in 2016,
given that the bank had been conducting an investigation into retail banking practices for several years at the time. In
April 2017, the bank utilized a clawback provision in Stumpf's contract to take back $28 million of his earnings. Tolstedt
was also forced to forfeit earnings, though she denied involvement. Tolstedt was responsible for the pressure placed on
middle management to dramatically increase the bank's "cross-sell ratio", a metric for how many accounts each
customer had.

The bank experienced decreased profitability in the first quarter after the news of the scandal broke. Payments to law
firms and other external advisers resulted in increased expenses. After earnings were reported in January 2017, the bank
announced it would close over 400 of its approximately 6000 branches by the end of 2018. In May 2017, the bank
announced that they would cut costs through investment in technology while decreasing reliance on its “sales
organization” The bank also revised up its 2017 efficiency-ratio goal from 60 to 61.

Tim Sloan later resigned in March 2019 under pressure related to the scandal.

Wells Fargo costs

The CFPB fined Wells Fargo $100 million in September 8, 2016 for the "widespread illegal practice of secretly opening
unauthorized accounts." The order also required Wells Fargo to pay an estimated $2.5 million in refunds to customers
and hire an independent consultant to review its procedures.

Wells Fargo incurred additional costs due to refunds and lawsuits:

 $6.1 million in customer refunds due to inappropriate fees and charges;

 $142 million in customer compensation due to a class-action settlement;
 $480 million settlement for a shareholder class-action lawsuit; and
 $575 million 50-state Attorneys General (AG) settlement for a combination of opening unauthorized accounts
and charging for unnecessary auto insurance and mortgage fees.

The December 2018 AG settlement announcement indicated that Wells Fargo had already paid $2.3 billion in
settlements and consent orders, so its $575 million settlement brought the total to nearly $3 billion.

On consumers Approximately 85,000 of the accounts opened incurred fees, totaling $2 million. Customers' credit
scores were also likely hurt by the fake accounts.[36] The bank was able to prevent customers from pursuing legal action
as the opening of an account mandated customers enter into private arbitration with the bank.

The bank agreed to settle for $142 million with consumers who had accounts opened in their names without permission
in March 2017. The money repaid fraudulent fees and paid damages to those affected
“5 of the Biggest Bank Scandals of the Past 5 Years”
Author: Dan Caplinger | September 28, 2018

1. Wells Fargo's fake-account scandal

In September 2016, federal bank regulators imposed a fine of $185 million on Wells Fargo (NYSE: WFC) for allegedly
creating millions of accounts on behalf of customers. As a result, millions of Wells Fargo customers had credit card,
checking, and other accounts without even knowing about them. The episode led to the firing of more than 5,000 bank
employees, and then-CEO John Stumpf ended up giving up substantial portions of his pay and leaving the company in
October.

Federal regulators have said that Wells Fargo isn't the only bank whose sales practices have been suspect. Now, most
banks have new procedures in place that require direct customer contact when an account is opened in their name to
confirm that the customer knows about the account.

2. Money laundering

In February 2018, U.S. Bancorp (NYSE: USB) settled charges from the U.S. Department of Justice that alleged that the
bank's efforts to fight money laundering were insufficient. U.S. Bancorp ended up paying $613 million as a result of the
settlement, including $453 million in forfeited funds as well as fines to the Federal Reserve, the Treasury Department,
and the Office of the Comptroller of the Currency.

The Department of Justice alleged that the bank's anti-money-laundering program missed a substantial number of
suspicious transactions between 2009 and 2014. U.S. Bancorp CEO Andy Cecere said that the bank regretted the lapse,
and the bank has already taken steps to strengthen its resolve against would-be money launderers.

3. Australian bank fee scandal

The U.S. isn't the only country to face banking scandals recently. In Australia, five of the nation's biggest financial
institutions are embroiled in a scandal involving improperly collecting fees for services that they never provided. Some
of the most egregious allegations included the institutions charging deceased clients for purported financial advice as
well as lying to banking and securities regulators about their customer practices. The banks could have to return as
much as AU$1 billion along with facing criminal charges for their behavior.
4. Gold and silver price fixing

Major banks around the world participate in trading of commodities like gold and silver, and in 2015, suspicions of price
fixing led to investigations from authorities in the European Union and Switzerland. Deutsche Bank (NYSE: DB) ended up
settling claims among gold and silver investors for a total of just under $100 million in 2016. Claims against Bank of
America (NYSE: BAC) and UBS Group (NYSE: UBS) were dismissed in U.S. federal court earlier this year, but several other
well-known international banks remain involved in the litigation.
5. Wells Fargo's car insurance scandal

Wells Fargo has found itself at the center of numerous troubling incidents over the past few years. Following internal
reviews conducted as a result of the fake-account scandal, the bank found in 2017 that hundreds of thousands of auto-
loan customers were forced to pay for comprehensive and collision insurance coverage for their vehicles -- even if they
already had their own coverage. That extra cost led to many people defaulting on their car loans and having their
vehicles repossessed -- as well as further damaging Wells Fargo's already tarnished reputation.