Form 8-K WELLS FARGO & COMPANY/MN For: Feb 02
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 2, 2018
WELLS FARGO & COMPANY
(Exact Name of Registrant as Specified in Charter)
Delaware | 001-02979 | No. 41-0449260 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
420 Montgomery Street, San Francisco, California 94163
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 1-866-249-3302
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 8.01 | Other Events |
On February 2, 2018, Wells Fargo & Company (the “Company”) issued a press release announcing it had entered into a consent order with the Board of Governors of the Federal Reserve System regarding the Company’s governance and risk management. The Company also posted a presentation regarding the requirements of the consent order and related matters on its website. A copy of the press release, presentation, and consent order are included as Exhibits 99.1, 99.2 and 99.3 to this report and are incorporated by reference into this Item 8.01.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description | Location |
Filed herewith. | ||
Filed herewith. | ||
Filed herewith. | ||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: | February 2, 2018 | WELLS FARGO & COMPANY | |
By: | /s/ ANTHONY R. AUGLIERA | ||
Anthony R. Augliera | |||
Deputy General Counsel and Secretary | |||
Exhibit 99.1
Media Investors
Arati Randolph John Campbell
Corporate Communications
704-383-6996
[email protected]
@AratiRandolphWF
Mark Folk
Corporate Communications
704-383-7088
[email protected]
@MarkFolkWF
Investor Relations
415-396-0523
[email protected]
Wells Fargo Commits to Satisfying Consent Order
with Federal Reserve
CEO Sloan cites efforts well underway to enhance
company’s compliance and operational risk management program
SAN FRANCISCO, February 2, 2018 – Wells Fargo & Company (NYSE: WFC) announced it is
confident it will satisfy the requirements of the consent order it agreed to today with the Board of
Governors of the Federal Reserve System. Under the consent order, the company will provide plans
to the Federal Reserve within 60 days that detail what already has been done, and is planned, to
further enhance the board’s governance oversight, and the company’s compliance and operational
risk management. The order also provides for third-party reviews of such plans and, until they are
approved and implemented, limits on the growth of the company’s total consolidated assets to the
level as of December 31, 2017.
“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,”
said Timothy J. Sloan, Wells Fargo’s president and chief executive officer. “It is important to note
that the consent order is not related to any new matters, but to prior issues where we have already
made significant progress. We appreciate the Federal Reserve’s acknowledgment of our actions to
date. In addition, the order is not related to Wells Fargo’s financial condition -- we remain in a
strong financial position and stand ready to serve the varied financial needs of our customers.”
“Our board is committed to meeting the expectations of our regulators and protecting and serving
the interests of our shareholders, customers, team members and the community,” said Betsy Duke,
independent chair of Wells Fargo’s Board of Directors and a former member of the Board of
Governors of the Federal Reserve. “Every change we’ve made over the past year reflects this and
the valuable feedback of investors and stakeholders. Moving forward, we’ll continue to be focused
on maintaining an appropriate mix of professional experiences and diverse perspectives necessary
to govern a franchise as important as Wells Fargo.”
The Federal Reserve’s consent order – which recognizes that the company already has
implemented improvements in its governance and risk management – includes the following
requirements:
• Within 60 days:
o The company’s board will submit a plan to further enhance the board’s effectiveness
in carrying out its oversight and governance of the company.
o The company will submit a plan to further improve the company’s firm-wide
compliance and operational risk management program.
• After Federal Reserve approval, the company will engage independent third parties to
conduct a review to be completed no later than September 30, 2018 to confirm adoption
and implementation of the plans.
• The asset limitation will remain in effect until third-party reviews have been completed to
the satisfaction of the Federal Reserve.
• After removal of the limits on asset growth, a second third-party review will be conducted to
assess the efficacy and sustainability of the risk management improvements.
“While there is still more work to do, we have made significant improvements over the past year to
our governance and risk management that address concerns highlighted in this consent order,”
Sloan said.
These actions have included:
Board governance:
• Separating the roles of chairman and CEO and amending the company’s by-laws to require
an independent chair.
• Electing six new independent directors in 2017 as five directors retired, bringing to eight
the total number of directors elected since 2015, and planned refreshment of an additional
four directors in 2018, with the retirement of three of those directors occurring by the time
of our 2018 Annual Meeting of Shareholders.
• Enhancing the overall capabilities and experience represented on the board, including
financial services, risk management, cyber, technology, regulatory, human capital
management, finance, accounting, and consumer and social responsibility.
• Reviewing the board’s committee structure and leadership, amending committee charters
to enhance risk oversight, and refreshing the chairs of certain key committees, including the
Risk Committee and Governance and Nominating Committee.
• Conducting a board self-evaluation in 2017 facilitated by Mary Jo White, a senior partner at
Debevoise & Plimpton LLP and former chair of the Securities and Exchange Commission.
The self-evaluation informed the board’s changes in its structure, composition and
governance practices.
Risk management:
• Centralizing critical control functions (including Human Resources, Finance, and
Technology) to improve enterprise visibility, consistency and control.
• Centralizing all risk management functions to accelerate the design and implementation of a
fully integrated operating model for risk management.
• Developing and executing comprehensive plans that addressed our compliance and
operational risk management programs, organizations, processes, technology and controls.
• Hiring external talent for critical risk management leadership roles – chief operational risk
officer, chief compliance officer and head of regulatory relations (newly created).
• Forming new centralized enterprise functions dedicated to key risk control areas, including
the Conduct Management Office (January 2017), Enterprise Data Management function
(September 2017) and Comprehensive Customer Remediation Group (November 2017).
Conference Call
The company will host a live conference call on February 2, 2018, at 4:30 p.m. PT (7:30 p.m. ET) to discuss
the consent order. The live audio webcast will be available at the following address:
https://engage.vevent.com/rt/wells_fargo_ao~9499813.
You also may participate by dialing 855-604-1135 (U.S. and Canada) or 574-990-3591 (International).
A replay of the conference call will be available beginning at 7:30 p.m. PT (10:30 p.m. ET) on Friday,
February 2, 2018, through Friday, February 16. Please dial 800-585-8367 (U.S. and Canada) or 404-537-
3406 (International) and enter Conference ID #9499813. The replay will also be available online at
https://www.wellsfargo.com/about/investor-relations/events/ and
https://engage.vevent.com/rt/wells_fargo_ao~9499813.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services
company with $2 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs
and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells
Fargo provides banking, investments, mortgage, and consumer and commercial finance through
more than 8,300 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and
has offices in 42 countries and territories to support customers who conduct business in the global
economy. With approximately 263,000 team members, Wells Fargo serves one in three households
in the United States. Wells Fargo & Company was ranked No. 25 on Fortune’s 2017 rankings of
America’s largest corporations.
Cautionary Statement about Forward-Looking Statements
This news release contains forward-looking statements about our future financial performance and
business. Because forward-looking statements are based on our current expectations and
assumptions regarding the future, they are subject to inherent risks and uncertainties. Do not
unduly rely on forward-looking statements as actual results could differ materially from
expectations. Forward-looking statements speak only as of the date made, and we do not undertake
to update them to reflect changes or events that occur after that date. For information about factors
that could cause actual results to differ materially from our expectations, refer to our reports filed
with the Securities and Exchange Commission, including the “Forward-Looking Statements”
discussion in Wells Fargo’s most recent Quarterly Report on Form 10-Q as well as to Wells Fargo’s
other reports filed with the Securities and Exchange Commission, including the discussion under
“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, available
on its website at www.sec.gov.
# # #
Wells Fargo Update:
Federal Reserve Consent Order
February 2, 2018
© 2018 Wells Fargo & Company. All rights reserved. Confidential.
Exhibit 99.2
1Wells Fargo Update
Wells Fargo entered into a Consent Order with the Board of Governors of the Federal
Reserve System on February 2, 2018, relating to our governance oversight, and
compliance and operational risk management program, which relates to prior issues
including our sales practices announcement on September 8, 2016
The Federal Reserve acknowledges that Wells Fargo has already taken steps to address
deficiencies in corporate governance and risk management, and has implemented
improvements in both
Within 60 days, the Board and the Company must submit plans to the Federal Reserve
that leverage existing plans and efforts already underway to:
- Further enhance the Board’s effectiveness in carrying out its oversight and governance of the
Company (Governance Plan)
- Further improve the firm wide compliance and operational risk management program (Risk
Management Program Plan)
Once we adopt and implement these two plans as approved by the Federal Reserve, we
will engage independent third parties to conduct an initial risk management review by
September 30, 2018
Until the Governance and Risk Management Program plans are adopted and
implemented, and the first third party review is completed to the satisfaction of the
Federal Reserve, our total asset size will be limited as follows:
- Effective 2Q18, Wells Fargo’s total consolidated assets must be held to the December 31, 2017
level
• We have flexibility to optimize our Balance Sheet while we continue to help our customers succeed
financially (See pages 5 and 6 for additional information)
Subsequently, after the asset cap has been lifted, and we have integrated the risk
management program improvements, we will engage in a second third-party review to
assess the efficacy and sustainability of the improvements
Federal Reserve Consent Order summary
2Wells Fargo Update
Relevant risk management enhancements already underway
Over the last 17 months, we continued our focus and accelerated progress on the
governance, compliance and operational risk issues referenced in the Federal Reserve’s
Consent Order, and we agree with the assessment that our work is not yet complete
- Much of the foundational work has been completed, as issues related to these functions were
previously identified by regulators, or were self-identified
Concurrently, we have made meaningful changes to our operating model that further
strengthen our governance and risk management, which include:
- Strengthened Board governance and oversight
- Centralized control functions
- Improved team member leadership and staff expertise including through external hires
- Increased investment spending and resources to address compliance and operating risk deficiencies
We are building on our progress to date and leveraging our experience in risk management
areas where we have excelled or made substantial improvements (e.g., credit/market risk,
model risk, capital stress testing, liquidity risk management including TLAC, resolution
planning), and we are confident that we are addressing the issues cited in the Consent
Order
As we execute on these plans and manage to the asset cap, we will continue to serve our
customers’ financial needs including saving, borrowing and investing, as we help them
succeed financially
3Wells Fargo Update
Board Leadership Structure Board Composition Governance Practices
Separated the roles of Chairman
and CEO
Amended By-Laws to require an
independent Board Chair
Elected new independent Chair,
Elizabeth “Betsy” Duke (former member
of the Federal Reserve Board of
Governors) effective January 1, 2018
Significant Board refreshment - Elected 6
new independent directors and 5 directors
retired in 2017; planned refreshment of an
additional 4 directors in 2018, with the
retirement of 3 of those directors occurring by
the 2018 Annual Meeting
Majority of independent directors (8) have
been added since 2015
Enhanced skills and experience
represented on Board, including financial
services, risk management, technology/cyber,
regulatory, human capital management,
finance, accounting, consumer and social
responsibility
2017 Board self-evaluation facilitated
by a third party (Mary Jo White,
former Chair of the SEC) following
2017 annual meeting and in advance of
typical year-end timing
Board Chair and Committee Chairs
focused on agenda planning and
managing information flow and
management reporting to the Board
Board continues to work with
management to enhance and focus Board
presentations and materials
Board actions taken to enhance structure and oversight
The Board has made significant changes to its leadership, composition, and governance practices that
resulted from a thoughtful and deliberate process informed by the Board’s comprehensive self-evaluation
process and the Company’s engagement with shareholders and other stakeholders.
Board Composition Evaluation
Robust annual Board and self-
evaluation process includes the
individual contributions of
directors
Succession planning and Board
refreshment
Recruitment of new
directors to complement
the existing skills and
experience of the Board in
areas identified through its
self-evaluation process while
maintaining an appropriate
balance of perspectives and
experience
Key Changes Made to Board Structure, Composition, and Oversight
Reconstitution of Key Committees
Risk Committee
Karen Peetz appointed as new Chair
Added 4 directors (Maria Morris, Karen Peetz, Juan
Pujadas, Suzanne Vautrinot)
Enhanced financial services, compliance, risk,
operational, cyber, and technology experience with
new composition
4 members have risk management expertise
meeting Federal Reserve enhanced prudential
standards for large U.S. bank holding companies
Consolidated oversight of second line of defense
risk management activities under the Risk
Committee
Established 2 subcommittees focused on (1)
compliance risk and (2) technology/cyber risk and
data governance and management
Governance and Nominating Committee
Donald James appointed as new Chair
Added 2 directors (Duke and James)
Enhanced financial services, corporate
governance, and regulatory experience with
new composition
Human Resources Committee
Added 2 directors (Peetz and Ron Sargent)
Enhanced oversight responsibilities to include
human capital management, culture, and ethics
Continues to oversee our incentive
compensation risk management program which
was expanded to include a broader population
of team members and incentive plans
4Wells Fargo Update
Actions taken to strengthen Risk Management organization
Following the centralization of risk management functions in 2017, we designed and are
implementing a fully integrated operating model for risk management that covers all
business groups and enterprise staff groups (including Corporate Risk)
- As a part of this transformation, we are currently executing comprehensive plans that address our
compliance and operational risk management programs, organizations, processes, technology and
controls
Hired external talent to strengthen our capabilities and address deficiencies:
- Chief Operational Risk Officer, Mark D’Arcy, joined February 2017; previously Global Head of
Operational Risk at State Street
- Chief Compliance Officer (CCO), Mike Roemer, joined January 2018; previously CCO at Barclays
- Head of Regulatory Relations (new position), Sarah Dahlgren, joining March 2018; currently a
Partner at McKinsey & Company in their risk practice, and previously a 25 year veteran of the
Federal Reserve Bank of N.Y.
- Hired more than 2,000 new external team members in Risk Management in 2016 and 2017
Established dedicated groups focused on key risk control areas and moved proven senior
talent into new roles leading those groups:
- Established a Conduct Management Office in January 2017, responsible for managing conduct risk
and driving consistency in the way Wells Fargo receives, researches, resolves, and oversees
allegations and customer complaints
- Created an Enterprise Data Management function in September 2017, responsible for defining the
infrastructure, business source systems and governance of all company data
- Formed a Comprehensive Customer Remediation Group in November 2017, responsible for
developing and implementing consistent enterprise standards for remediation across all consumer
products
5Wells Fargo Update
Effective 2Q18, Wells Fargo’s total consolidated assets will be held to the December 31,
2017 period-end level of $2.0 trillion
- Compliance will be measured on a 2-quarter daily average basis, which allows for management of
temporary fluctuations
Asset cap will remain in effect until we have finalized, adopted and implemented the
enhanced plans for governance and risk management to the satisfaction of the Federal
Reserve, and the first third-party review has been completed
Our Balance Sheet scale provides us with flexibility to manage within the asset cap to serve
our customers’ financial needs and generate a competitive Return on Equity (ROE) for
shareholders
- Certain portfolios that have been net interest income-enhancing and ROE beneficial, yet dilutive to
Return on Assets (ROA), have grown as a result of our strong leverage ratio position
- Until the asset cap is removed, we intend to temporarily limit some of these activities by actions
that:
• Can be taken in a relatively short period of time, which will enable us to continue to grow traditional loans and
deposits
• Would be expected to impact only a modest percentage of the total Balance Sheet
• Would be expected to impact only a portion of the portfolios currently under consideration
- Page 6 provides examples of portfolios under consideration for possible Balance Sheet optimization
activities, though the actual actions we take will be dependent upon underlying business trends
and/or strategies
Balance Sheet flexibility should minimize customer impact of the asset cap
With $2.0 trillion in assets, our scale provides us with the flexibility to continue to serve our
customers’ financial needs including saving, borrowing and investing, and to deliver a
competitive ROE for shareholders
6Wells Fargo Update
Financial Institutions’
Deposits
Trading Assets and Short-
term Investments
As of 12/31/17, ~$200 billion of non-
operational deposits
- On average these deposits provide
~45% liquidity value under the
liquidity coverage ratio (LCR) as they
do not meet requirements of the
operational deposit definition
Impact considerations:
- Modest NII headwind
- Manageable LCR impact due to
relatively lower liquidity value including
some categories with zero liquidity
value
- Total average deposit cost and deposit
betas are expected to benefit from any
reduction in balances from this
category
As of 12/31/17, $149 billion (1) of
deposits in our Financial Institutions
Group
- Balances have grown over $36 billion
since 2Q16
- Certain deposits provide little liquidity
value, are high beta/short-term, and
high cost
o 4Q17 average deposit cost of 0.91%
Impact considerations:
- Modest NII headwind
- Manageable LCR impact due to
relatively lower liquidity value including
some categories with zero liquidity
value
- Total average deposit cost and deposit
betas are expected to benefit from any
reduction in balances from this
category
As of 12/31/17, $92 billion of trading
assets
- As part of Resolution and Recovery
Planning we placed a temporary cap
on non-bank assets including trading
assets
As of 12/31/17, $91 billion of short-
term investments, excluding cash at
the Fed
- Predominantly securities borrowed
and reverse repurchase
Impact consideration:
- A portion of expected trading balances
and related revenue would be
foregone
Non-operational Deposits
(Commercial Only)
(1) A portion of Financial Institutions Group deposits are also included in the $200 billion of non-operational deposits noted above.
(2) Preliminary analysis that reflects the net income impacts of one set of assumptions for prospective Balance Sheet optimization activities to manage within the
asset cap. The analysis assumed we would primarily limit trading assets, short-term investments, and certain deposits that have less liquidity value by $50 billion
to $75 billion on average to accommodate assumed growth in lending, deposit taking and other asset and liability categories, as well as to provide an internal
buffer. The average assumed net interest margin (NIM) on the asset/liability categories reduced was in the range of 70-75 bps. Actual actions taken and resulting
financial impact will be dependent upon underlying business trends and/or strategies and will be determined over time.
Examples of Balance Sheet flexibility
Based on our preliminary analysis, Net Income after Tax impact of Balance Sheet
optimization to manage to the asset cap is estimated to be ~$(300 – 400) million in 2018 (2)
Temporary actions currently under consideration to manage to the asset cap
would likely reflect a mix of actions including a reduction in a portion of the
following portfolios, and would enable us to continue to serve our customers’ needs and
grow traditional loans and deposits
7Wells Fargo Update
What will the customer impact be?
- We will continue to serve our customers’ financial
needs including saving, borrowing and investing, as
we help them succeed financially
- We have flexibility to manage our Balance Sheet by
optimizing certain activities, which could include
temporarily pulling back from some activities
focused on providing liquidity to market participants
including other financial institutions
Do you have the capacity to address the
requirements, and how long will it take?
- This is priority #1 for the Company, and we will
allocate whatever resources are necessary to
address the issues citied
- We are working on augmenting the plans we
currently have in place for submission to the Federal
Reserve, and after Federal Reserve approval of the
plans we will engage independent third parties to
conduct a review to be completed no later than
September 30, 2018
When do you expect the Federal Reserve to
remove the constraint on your assets?
- There are a number of key deliverables in the
Consent Order.
- The asset cap will remain in effect until we have
adopted and implemented the plans for enhanced
governance and risk management, and the first
third-party review has been completed to the
satisfaction of the Federal Reserve
Are these new issues that have been
identified?
- These are not new issues. They are related to
compliance and operational risk matters that were
previously identified by regulators, or were self-
identified
Are you still committed to your expense
savings plans?
- We are focused on delivering expense savings, and
reinvesting in the business as previously disclosed
- We remain committed to our previously disclosed
2018 expense guidance, as well as our targeted $4
billion in expense savings by year-end 2019
What does this mean for your efficiency, ROE
and ROA targets?
- Updated annual targets will be disclosed at our May
2018 Investor Day, and will consider the impacts of
the 2017 Tax Act, as well as the asset cap
Will you be able to return more capital to
shareholders this year?
- With ~190 bps of capital above our internal
Common Equity Tier 1 target of 10%, as of
12/31/17, we remain committed to returning more
capital to shareholders
Key questions
Key questions and current outlook
8Wells Fargo Update
Key takeaways
We have been focused on the same issues cited by the Federal Reserve, and while we have
made meaningful progress we acknowledge additional work is necessary
We are building on our progress to date, leveraging our experience in risk management in
areas where we have excelled, and are confident that we are addressing the issues
We are committed to meeting the Consent Order requirements and are currently working
on our comprehensive Risk Management Program Plan, while the Board develops the
Governance Plan, for submission to the Federal Reserve within 60 days
We believe that our Balance Sheet scale provides us with the flexibility to manage within
the asset cap, serve our customers’ financial needs including saving, borrowing and
investing, and generate a competitive Return on Equity (ROE)
We take the Consent Order very seriously and we will successfully complete the work that we
have started, as we continue on the path towards building a better Wells Fargo
9Wells Fargo Update
Forward-looking statements and additional information
Forward-looking statements:
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In
addition, we may make forward-looking statements in our other documents filed or furnished with the SEC, and our management may
make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can
be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,”
“forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements
include, but are not limited to, statements we make about: (i) the balance sheet optimization strategies described in this document,
including their anticipated effects and our ability to implement those strategies, (ii) when we expect to fulfill our requirements under the
Consent Order, (iii) our expense savings plans, (iv) the future operating or financial performance of the Company; (v) our noninterest
expense and efficiency ratio; (vi) future credit quality and performance, including our expectations regarding future loan losses and
allowance levels; (vii) the appropriateness of the allowance for credit losses; (viii) our expectations regarding net interest income and net
interest margin; (ix) loan growth or the reduction or mitigation of risk in our loan portfolios; (x) future capital or liquidity levels or targets
and our estimated Common Equity Tier 1 ratio under Basel III capital standards; (xi) the performance of our mortgage business and any
related exposures; (xii) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations
regarding compliance therewith; (xiii) future common stock dividends, common share repurchases and other uses of capital; (xiv) our
targeted range for return on assets and return on equity; (xv) the outcome of contingencies, such as legal proceedings; and (xvi) the
Company’s plans, objectives and strategies. Forward-looking statements are not based on historical facts but instead represent our current
expectations and assumptions regarding our business, the economy and other future conditions. Investors are urged to not unduly rely on
forward-looking statements as actual results could differ materially from expectations. Forward-looking statements speak only as of the
date made, and we do not undertake to update them to reflect changes or events that occur after that date. For more information about
factors that could cause actual results to differ materially from expectations, refer to the “Forward-Looking Statements” discussion in Wells
Fargo’s press release announcing our fourth quarter 2017 results and in our most recent Quarterly Report on Form 10-Q, as well as to
Wells Fargo’s other reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2016.
Additional information and where to find it:
Wells Fargo & Company (the “Company”) will file a proxy statement related to items to be voted on at its 2018 annual meeting of
shareholders with the Securities and Exchange Commission (“SEC”). INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ
THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors
and security holders may obtain a free copy of the proxy statement (when available) and other documents filed by the Company with the
SEC at the SEC’s web site at www.sec.gov. Free copies of the proxy statement, once available, and the Company's other filings with the
SEC may also be obtained from the Company upon written request to the Office of the Corporate Secretary, Wells Fargo & Company, MAC
D1053-300, 301 S. College Street, Charlotte, North Carolina 28202.
Participants in the solicitation:
The Company and its directors, executive officers, and other members of management and employees may be soliciting proxies from Wells
Fargo shareholders in connection with items to be voted on at the Company’s 2018 annual meeting of shareholders. Information regarding
the persons who may, under the rules of the SEC, be deemed participants in the solicitation of proxies, including a description of their
direct and indirect interest, by security holdings or otherwise, will be set forth in the Company’s proxy statement filed with the SEC.
Exhibit 99.3
UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.
In the matter of
WELLS FARGO & COMPANY
San Francisco, California
Docket No. 18-007-B-HC
Order to Cease and Desist
Issued Upon Consent Pursuant to
the Federal Deposit Insurance Act,
as Amended
WHEREAS, Wells Fargo & Company, San Francisco, California (“WFC”), a registered
bank holding company, owns and controls Wells Fargo Bank, N.A., San Francisco, California
(the “Bank”), a national bank;
WHEREAS, WFC is a large, complex organization that has a number of separate
business lines and legal entities (collectively, these business lines and legal entities, together with
WFC, referred to herein as the “Firm”);
WHEREAS, the Board of Governors of the Federal Reserve System (the “Board of
Governors”) is the appropriate federal supervisor of WFC;
WHEREAS, consistent with section 252.33(a)(2) of Regulation YY of the Board of
Governors (12 C.F.R. § 252.33(a)(2)), WFC is required to adopt an improved firmwide risk
management program designed to identify and manage risks across the consolidated
organization;
WHEREAS, the board of directors of WFC (the “Board”) is responsible for evaluating
the Firm’s risk management capacity;
2
WHEREAS, the Firm pursued a business strategy that emphasized sales and growth
without ensuring that senior management had established and maintained an adequate risk
management framework commensurate with the size and complexity of the Firm, which resulted
in weak compliance practices;
WHEREAS, the Federal Reserve Bank of San Francisco (the “Reserve Bank”) and Board
of Governors previously identified deficiencies in WFC’s risk management – including
compliance risk management – that WFC has yet to correct fully;
WHEREAS, the Bank consented to the issuance of Consent Orders by the Office of the
Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (the
“CFPB”) designed to remedy deficiencies cited by the OCC and the CFPB in the Bank’s
management oversight of sales practices and risk management;
WHEREAS, WFC must continue to implement an effective firmwide risk management
program that is commensurate with WFC’s size, complexity and risk profile to ensure that WFC
operates in a safe and sound manner and complies with all applicable law and regulations;
WHEREAS, it is the common goal of the Board of Governors, the Reserve Bank, and
WFC that WFC’s Board maintain effective corporate governance and oversight over the Firm,
including the establishment and maintenance of robust risk management and compliance
programs on a consolidated basis;
WHEREAS, the Firm has taken steps to review its corporate governance and risk
management, has identified and reported relevant instances of compliance and conduct
deficiencies to the Board of Governors and the Reserve Bank, and has cooperated with the Board
of Governors and the Reserve Bank;
WHEREAS, to address the deficiencies described above, the Firm has implemented and
3
must continue to implement improvements in its governance and risk management in order to
comply with safe and sound banking practices, and applicable laws and regulations;
WHEREAS, the Board of Governors is issuing this Consent Order to Cease and Desist
(“Order”);
WHEREAS, pursuant to delegated authority, the undersigned signatories for WFC are
authorized to enter into this Order on behalf of WFC, and consent to WFC’s compliance with
each and every provision of this Order, and to waive any and all rights that WFC may have with
respect to this Order pursuant to section 8 of the Federal Deposit Insurance Act, as amended (the
“FDI Act”) (12 U.S.C. § 1818), and 12 C.F.R. Part 263, including, but not limited to: (i) the
issuance of a notice of charges on any matters set forth in this Order; (ii) a hearing for the
purpose of taking evidence on any matters set forth in this Order; (iii) judicial review of this
Order; and (iv) challenge or contest, in any manner, the basis, issuance, validity, terms,
effectiveness, or enforceability of this Order or any provision hereof;
NOW, THEREFORE, it is hereby ordered by the Board of Governors that, before the
filing of the notices, or taking of any testimony, or adjudication of or finding on any issues of
fact or law herein, and solely for the purpose of settling this matter without a formal proceeding
being filed and without the necessity for protracted or extended hearings or testimony, pursuant
to sections 8(b)(1) and 8(b)(3) of the FDI Act (12 U.S.C. §§ 1818(b)(1), 1818(b)(3), WFC and its
institution-affiliated parties, as defined in sections 3(u) and 8(b)(3)of the FDI Act (12 U.S.C. §§
1813(u) and 1818(b)(3), shall cease and desist and take affirmative action as follows:
Source of Strength
1. WFC’s Board shall take appropriate steps to fully utilize WFC’s financial and
managerial resources, pursuant to section 38A of the FDI Act (12 U.S.C. § 1831o-1) and section
4
225.4(a) of Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)), to serve as a source
of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank
complies with the Consent Orders issued by the OCC, dated September 6, 2016, and the CFPB,
dated September 4, 2016.
Board Effectiveness
2. Within 60 days of this Order, the Board shall submit a written plan to further
enhance the Board’s effectiveness in carrying out its oversight and governance of WFC,
acceptable to the Reserve Bank. The plan shall, at a minimum, address, consider, and include:
(a) actions that the Board will take to further improve its effectiveness,
including:
(i) actions to ensure that the Firm’s strategy and risk tolerance are
clear and aligned and within the Firm’s risk management capacity;
(ii) actions to ensure its composition, governance structure, and
practices support its strategy and are aligned with its risk tolerance; and
(iii) a plan to ensure that no roles or responsibilities of the Board are
unfulfilled for an undue period of time following the departure of any member of the Board;
(b) actions that the Board will take to further improve its oversight of senior
management, including holding senior management accountable for implementing and
maintaining the Firm’s strategy in accordance with Board direction and the Firm’s risk tolerance
and capacity, and the Firm’s risk management and control framework (including the
enhancements required in this Order);
5
(c) actions the Board will take to ensure senior management’s ongoing
effectiveness in managing the Firm’s activities and related risks and promoting strong risk
management across the Firm;
(d) actions that the Board will take to ensure senior management establishes,
and thereafter maintains:
(i) an effective and independent firmwide risk management function
that:
(A) covers all material risks facing the Firm;
(B) has the requisite stature, authority, and resources, with
clearly defined roles and responsibilities (as determined pursuant to the review required in
paragraph (c)), and provides for staffing WFC’s risk management function with the appropriate
level of expertise, including with respect to WFC’s operational and compliance risk management
functions; and
(C) with respect to compliance and operational risk
management, maintains a management structure that promotes effective oversight and control of
compliance and operational risks, that is appropriately independent of the related line of
business, and that has separate and independent reporting lines to the Chief Risk Officer and to
the Board or an appropriate committee of the Board;
(ii) an effective risk tolerance program that defines the Firm’s risk
capacity and the tolerances under which it will operate;
(iii) an effective risk identification and escalation framework that
identifies, aggregates, evaluates and appropriately reports material risk issues, plans to address
risks, and progress with respect to those plans;
6
(iv) a comprehensive and effective risk data governance and
management framework;
(e) actions that the Board will take with respect to any additional
enhancements to WFC’s performance management processes that are necessary to ensure that
compensation and other incentives are consistent with risk management objectives and
measurement standards, including, but not limited to, appropriate consequences for violations of
WFC’s policies, applicable laws and regulations, and adverse risk outcomes; and
(f) comprehensive reporting that will enable the Board to oversee
management’s execution of its risk management responsibilities, including, but not limited to,
measures taken to comply with this Order, and provide the Board with sufficient information to
evaluate the effectiveness of the operational and compliance risk management functions.
Risk Management Program
3. Within 60 days of this Order, WFC shall submit a written plan to further improve
its firmwide compliance and operational risk management program, acceptable to the Reserve
Bank. The plan shall, at a minimum, address, consider, and include:
(a) effective testing and validation measures for compliance and operational
risks to ensure business lines, as relevant, follow applicable laws, regulations, policies, and
procedures (including consumer compliance laws, regulations, and supervisory guidance) and to
ensure effective testing of design and execution of operational and compliance risk controls;
(b) specific measures management will take to integrate all applicable
compliance and operational risk requirements into business process and control designs and
related change management initiatives;
7
(c) specific measures to enhance the firmwide operational risk management
program, to include, but not limited to:
(i) a well-controlled key risk indicator program linked to the firm’s
risk identification and risk tolerance processes;
(ii) a stress loss forecasting methodology that adequately quantifies the
firm’s operational risks under stress; and
(d) a review of policies, procedures and practices at WFC and its subsidiary
entities for remediating customers that are harmed by the firm’s products or services or the
misconduct of an employee, and specific measures to address any deficiencies in policies,
procedures, and practices identified by the firmwide review.
Third Party Reviews
4. (a) Following WFC’s adoption and implementation of the plans and
improvements required under Paragraphs 2 and 3 of this Order, WFC shall conduct and complete
by an appropriate date no later than September 30, 2018, an independent review of: (i) the
Board’s improvements in effective oversight and governance of the Firm, and (ii) enhancements
to the Firm’s compliance and operational risk management program, each as required in this
Order (the “Initial Risk Management Review”).
(b) Following WFC’s integration of the improvements required by this Order
into WFC’s business-as-usual practices and operations, the Firm shall conduct a second
independent review to assess the efficacy and sustainability of the improvements (the “Second
Risk Management Review”).
(c) The Initial and Second Risk Management Reviews shall be conducted by
third party expert(s) acceptable to the Reserve Bank. No later than 30 days before the scheduled
8
commencement of each of these reviews, WFC shall submit a plan acceptable to the Reserve
Bank that details the scope of work.
(d) The results of the Initial and Second Risk Management Reviews shall be
submitted to the Reserve Bank and the Board of Governors within 30 days of completion.
(e) Based on the Reserve Bank’s evaluation of the results of the Initial and
Second Risk Management Reviews, the Reserve Bank, with the concurrence of the Director of
the Division of Supervision and Regulation, may direct WFC to conduct additional reviews as
necessary and may require such reviews to be performed by an independent third party or WFC’s
internal audit function.
Limits on Growth
5. (a) As of the last day of the first full calendar quarter following the date of
this Order and the last day of each quarter thereafter, WFC shall not, without the prior written
approval of the Reserve Bank, with the concurrence of the Director of the Division of
Supervision and Regulation, take any action that would cause the average of WFC’s total
consolidated assets reported in line 5 of Schedule HC-K to the form FR Y-9C (Consolidated
Financial Statements for Holding Companies) for the current calendar quarter and the immediate
preceding calendar quarter to exceed the total consolidated assets reported as of December 31,
2017, in line 12 of Schedule HC to the form FR Y-9C (Consolidated Financial Statements for
Holding Companies).
(b) The restrictions of paragraph 5(a) shall continue in force and effect until
WFC:
(i) submits to the Reserve Bank the written plans and programs
described in paragraphs 2 and 3 of this Order;
9
(ii) is notified in writing by the Reserve Bank and the Director of the
Division of Supervision and Regulation, that the aforesaid plans and programs are acceptable;
(iii) the Firm adopts and implements the aforesaid plans and programs
and the Initial Risk Management Review pursuant to Paragraph 4(a) of this Order is completed
to the satisfaction of the Reserve Bank, with the concurrence of the Director of the Division of
Supervision and Regulation; and
(iv) is notified in writing by the Reserve Bank, with the concurrence of
the Director of the Division of Supervision and Regulation, that all of the above-described
conditions have been met.
(c) If WFC does not make progress satisfactory to the Board of Governors in
addressing the deficiencies cited in this Order, the Board of Governors may impose additional
restrictions or limits, or take other action as permitted under applicable law.
Approval, Implementation, and Progress Reports
6. (a) WFC shall submit written plans that are acceptable to the Reserve Bank
and reports within the applicable time periods set forth in paragraphs 2, 3 and 4 of this Order.
The plans shall contain a timeline for full implementation with specific deadlines for the
completion of each component of the plans.
(b) Within 10 days of approval by the Reserve Bank, WFC shall adopt the
approved plans. Upon adoption, WFC shall implement the approved plans and thereafter fully
comply with them.
(c) During the term of this Order, the approved plans shall not be amended or
rescinded without the prior written approval of the Reserve Bank.
10
7. Within 30 days after the end of each calendar quarter following the date of this
Order, the Board or an authorized committee thereof shall submit to the Reserve Bank written
progress reports detailing the form and manner of all actions taken to secure compliance with the
provisions of this Order and the results thereof.
8. The Firm shall continue to fully cooperate with and provide substantial assistance
to the Board of Governors, including but not limited to, the provision of information, testimony,
documents, records, and other tangible evidence and perform analyses as directed by the Board
of Governors in connection with the investigations of whether separate enforcement actions
should be taken against individuals who are or were institution-affiliated parties of the Firm and
who were involved in the conduct underlying this Order. For purposes of clarity and not
limitation, substantial assistance as used in this Order means the Firm will use its best efforts, as
determined by the Board of Governors, to make available for interviews or testimony, as
requested by the Board of Governors, present or former officers, directors, employees, agents
and consultants of the Firm, to the extent permitted by law. This obligation includes, but is not
limited to, sworn testimony pursuant to administrative subpoena as well as interviews with
regulatory authorities. Cooperation under this paragraph shall also include identification of
witnesses who, to the Firm’s knowledge, may have material information regarding the matters
under investigation.
Notices
9 . All communications regarding this Order shall be sent to:
Richard M. Ashton, Esq.
Deputy General Counsel
Patrick M. Bryan, Esq.
Assistant General Counsel
Board of Governors of the Federal Reserve System
20th & C Streets, N.W.
11
Washington, D.C. 20551
(b) Milt Simpson
Vice President
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, California 94105
(c) C. Allen Parker
General Counsel
Wells Fargo & Company
45 Freemont Street
San Francisco, California 94105
Miscellaneous
10. Notwithstanding any provision of this Order to the contrary, the Reserve Bank
may, in its sole discretion, grant written extensions of time to WFC to comply with any provision
of this Order.
11. The provisions of this Order shall be binding on WFC and each of its
institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the FDI Act (12 U.S.C. §§
1813(u) and 1818(b)(3)) in their capacities as such, and their successors and assigns.
12. Each provision of this Order shall remain effective and enforceable until stayed,
modified, terminated, or suspended in writing by the Board of Governors.
13. The provisions of this Order shall not bar, estop, or otherwise prevent the Board
of Governors, the Reserve Bank, or any other federal or state agency from taking any other
action affecting WFC, any of its subsidiaries, or any of their current or former institution-
affiliated parties and their successors and assigns.
14. Nothing in this Order, express or implied, shall give to any person or entity, other
than the parties hereto and their successors hereunder, any legal or equitable right, remedy, or
claim under this Order.
12
By Order of the Board of Governors of the Federal Reserve System effective this
day of , 2018.
As the duly elected and acting
Board of Directors of,
WELLS FARGO & COMPANY BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
By: /s/ TIMOTHY J. SLOAN By: ___________________________
Timothy J. Sloan Ann E. Misback
Secretary of the Board
By: /s/ ELIZABETH A. DUKE
Elizabeth A. Duke
By: /s/ JOHN D. BAKER II
John D. Baker II
By: /s/ JOHN S. CHEN
John S. Chen
By: /s/ CELESTE A. CLARK
Celeste A. Clark
By: /s/ THEODORE F. CRAVER, JR.
Theodore F. Craver, Jr.
13
By: /s/ LLOYD H. DEAN
Lloyd H. Dean
By: /s/ ENRIQUE HERNANDEZ, JR.
Enrique Hernandez, Jr.
By: /s/ DONALD M. JAMES
Donald M. James
By: /s/ MARIA R. MORRIS
Maria R. Morris
By: /s/ KAREN PEETZ
Karen B. Peetz
by Allen Parker
Attorney-in-Fact
By: /s/ FEDERICO F. PENA
Federico F. Pena
By: /s/ JUAN A. PUJADAS
Juan A. Pujadas
By: /s/ JAMES H. QUIGLEY
James H. Quigley
14
By: /s/ RONALD L. SARGENT
Ronald L. Sargent
By: /s/ SUZANNE M. VAUTRINOT
Suzanne M. Vautrinot