Wells Fargo in talks to scratch one scandal off next CEO's list
Wells Fargo is in negotiations to settle a U.S. probe into procurement of low-income housing tax credits as its top lawyer tries to clean up issues before handing off the chief executive officer role.
The U.S. Justice Department is aiming to resolve an investigation into multiple banks' alleged manipulation of tax-credit bidding in the next couple months, according to people familiar with the matter. Wells Fargo's settlement could exceed $100 million, said the people, asking not to be identified because no agreement has been reached.
The agency is investigating whether Wells Fargo and other banks, including PNC Financial, colluded with developers to lower bids for tax credits that are part of a federal program to encourage development of affordable housing. Wells Fargo is searching for an outside leader to replace Tim Sloan, who stepped down in March after struggling to move the lender past a number of scandals. The bank named general counsel Allen Parker as interim CEO.
State housing agencies award federal tax credits to developers, who sell them to banks or other investors in the housing projects. Inconsistencies in credit purchase prices for similar projects in recent years prompted an inquiry into potential fraud, with developers selling banks the credits for deflated prices in exchange for better loan terms.
Lowering the price of the tax credit provides a higher return to a project's investor, while resulting in lower tax revenue for the U.S. government. It also could lead to some deals getting more credits than they would otherwise need, rather than freeing them up for other projects. The probe has prompted some banks to self-report behavior related to the tax credits to state housing agencies, one of the people said.
San Francisco-based Wells Fargo disclosed government inquiries in a regulatory filing last year. Two community lending and investment employees were fired in connection with the probe, Bloomberg reported in November. AnnMarie McDonald, a spokeswoman for Wells Fargo, said the company was fully cooperating with the investigation, but couldn't comment further on it.
"Wells Fargo's investment in affordable housing has helped improve access to housing in cities across the country where it is needed most, and we remain committed to LIHTC projects for both the short and long term," McDonald said in an emailed statement.
A PNC spokeswoman said the bank is cooperating with the probe. A Justice Department spokesman declined to comment.