Shares of Wells Fargo plunged after the Federal Reserve announced on Friday that it was restricting the size of Wells Fargo in response to its widespread consumer abuses.
Wells Fargo, because of this restriction, is planning to replace three of its directors before April and one more before the end of 2018. The Fed has prohibited the bank from becoming any larger than its 2017 end of year total assets until there have been sufficient improvements made. Shares briefly dropped by 6% at the bank during afterhours trading.
In a prepared statement, the Federal Reserve said it could not tolerate the persistent and pervasive misconduct at any U.S. bank and those consumers hurt by Wells Fargo expect that comprehensive and robust reforms will be implemented to make certain the abuses will never occur again.
Yellen added that the enforcement action the Fed is taking will ensure Wells Fargo is not going to expand until it can do so in a safe manner and with protections in place that are needed to manage all its risks and to protect all its customers.
Yellen ended her term as the Federal Reserve chairperson this week and starts on Monday at the Brookings Institution.
The Fed made no note of any abuses that were new by Wells Fargo in the statement and neither of the releases by the Fed mentioned specific names of bank board members who, would be leaving.
In a prepared statement Wells Fargo said that within the next 60 days it would be providing details to the Federal Reserve about its plan of enhancing the governance oversight by the board and the operational risk and compliance management of the company.
CEO and President of Wells Fargo Timothy Sloan said that the bank takes the Federal Reserve order very seriously and is focused on addressing all the concerns the Fed has.
He noted that the order was not related to the financial condition of the bank which continues to be strong.
Sloan became the CEO during the fall of 2016 as the bank tried to come back from the sales scandal involving its consumer bank unit.
In 2016 it was brought to light that workers at the bank had opened more than 3 million consumer credit card and deposit accounts without the authorization of the customer dating back to 2011.
Penalties in the amount of $185 million were paid by the bank and the bank in 2017 reached a preliminary settlement of a class-action suit of $142 million.