Wells Fargo adds $1 billion to possible legal cost as woes mount

Wells Fargo & Co. added $1 billion in the third quarter to what it says the bank may face in possible legal expenses.

Legal costs could potentially be $3.3 billion more than what the San Francisco-based bank has reserved, Wells Fargo said Friday in a regulatory filing. While that figure was unchanged from the previous three-month period, it constitutes a $1 billion increase because Wells Fargo moved a similar amount into legal reserves during the period.

Wells Fargo sign
A Wells Fargo & Co. sign sits on display outside the company's offices in San Francisco, California, U.S., on Tuesday, April 27, 2010. Wells Fargo & Co., the fourth-largest U.S. bank by assets and deposits, may raise its dividend once capital levels satisfy regulators and if the economic recovery continues, said Chief Executive Officer John Stumpf. Photographer: David Paul Morris/Bloomberg

The bank announced a surprise $1 billion charge in the third quarter for a previously disclosed regulatory investigation into its pre-financial crisis mortgage activity when it reported third quarter earnings. Banks typically move funds into an accrual when they determine a cost is no longer “reasonably possible” and instead becomes probable.

Ancel Martinez, a spokesman for the firm, declined to comment about the increase.

Wells Fargo said in Friday’s filing that the $3.3 billion estimate declined by what was moved to the accrual, but was then “offset by the possibility of increased risk in a variety of matters, including the company’s existing mortgage-related regulatory investigations.” Chief Financial Officer John Shrewsberry said in an interview last month that the bank would reach a settlement with regulators over the mortgage issue in “probably months or quarters.” He declined to say how large the settlement may be.

Wells Fargo also said in the filing that it will pay $130 million — or $50 million more than previous estimates — to auto customers who were charged for unwanted insurance. The updated amount includes $100 million in cash remediation and $30 million in adjustments for customers who had the insurance added to their accounts after Oct. 15, 2005, according to the filing. Wells Fargo had said in July it would pay harmed customers $80 million.

The Office of the Comptroller of the Currency criticized the bank for forcing borrowers to buy unneeded car insurance when they took out car loans, the New York Times reported last month. That preliminary report said the bank underestimated how much it would cost to reimburse customers, and that it hadn’t looked far enough back for harm.

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