Wells Fargo expands board, mulls changes to auto loan pricing

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Wells Fargo, which continues to deal with the fallout of various scandals, is adding a new board member and contemplating changes in how it prices auto loans.

The San Francisco bank said Wednesday that Charles Noski will join the board on June 1 and sit on its audit and examination committee.

During his career, Noski has done stints as the chief financial officer at Bank of America, Northrop Grumman Corp. and AT&T Corp. Noski also served on the board of Morgan Stanley, and he spent 17 years at Deloitte & Touche, including seven as an audit partner.

“He is a recognized expert in finance and accounting who also has demonstrated valuable leadership in operations, strategy and business transformation,” Elizabeth Duke, the chair of Wells Fargo’s board, said in a press release.

In November, Federal Reserve Chairman Jerome Powell wrote in a letter to Congress that the Fed would not lift the asset cap it has imposed on Wells Fargo until the bank addresses deficiencies in board oversight and its risk management program.

The Fed imposed the asset cap in the wake of numerous scandals at Wells Fargo, starting with the revelation in 2016 that bank employees had opened millions of customer accounts without their permission.

Shortly after the cap took effect, the company shrunk its board from 16 members to 12.

Now the $1.9 trillion-asset bank is expanding the size of its board. The latest appointment means that eight of the company’s 13 directors will have joined the board since 2017.

Also on Wednesday, Wells Fargo retail banking chief Mary Mack hinted at potential changes in Wells Fargo’s auto lending business, which is in growth mode again following a restructuring effort. The company originated $5.4 billion in auto loans during the first quarter, up 24% from the same period a year earlier.

Typically, when banks make loans to consumers through auto dealers, they pay the dealer a markup that varies depending on the interest rate charged to the car buyer— an arrangement that critics say often hurts minority borrowers.

Mack indicated that Wells Fargo is considering switching to the pricing model that has long been favored by consumer advocates. Under this model, lenders pay auto dealers a flat percentage of the loan amount.

During the tenure of former Director Richard Cordray, the Consumer Financial Protection Bureau sought, though with little success, to convince auto lenders to adopt this change.

“In our auto business … we’ve gotten feedback that perhaps the pricing historically has not been as clear,” Mack said in remarks at an investor conference Wednesday. “And what we said was, let's just rethink the way we price.”

In April 2018, Wells was hit by regulators with a $1 billion penalty as a result of abuses in its auto-lending and mortgage businesses.

Separately on Wednesday, Mack addressed investor concerns about rising deposit costs at the bank. First-quarter deposit costs at Wells Fargo were 10 basis points higher than they were during the fourth quarter of last year — a metric that was flat at rival Bank of America.

Mack indicated that the firm is being forced to pay more for deposits because it relies less on promotional pricing than some of its big-bank peers. Other banks are paying customers $200 to $800 to open an account, and those expenditures do not count as deposit costs, she said.

“We're seeing a reasonably competitive environment,” said Mack, “and we're pricing for an incremental dollar of deposits.”

Wells reported average total deposits of $1.26 trillion at the end of the first quarter, down 3% from a year earlier.

Chief Financial Officer John Shrewsberry said last month that the company has been using promotional high-yield certificates of deposit in certain markets. Continued upward pressure on deposit pricing is hurting the spread that Wells earns on the difference between the interest rates that it pays to depositors and the rates that it collects on loans, he said.

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