Memphis and Shelby had filed a claim in December 2009, alleging that 43.2% of Wells Fargo’s foreclosures were in predominantly African-American neighborhoods while only 21.5% were in predominantly white neighborhoods. At the same time Wells Fargo had allegedly granted the majority of its loans to whites. The claim also alleged things such as the drafting of marketing materials for the lowest quality mortgages in what the bank had defined as African-American language.
Wells Fargo promised to make $425 million in mortgages available to Memphis and Shelby residents within the next five years, nearly a third of which shall go to low- and moderate-income borrowers. It will also invest $7.5 million toward helping the neighborhoods recover from the housing crisis by providing grants for things such as home renovations, down payments and financial literacy programs. “We agreed that it was in the best interests of everyone involved to work together rather than to continue to be involved in a protracted legal fight,” said Leigh Collier, Wells Fargo regional president for the Mid-South, in a statement Tuesday.
To give credit where it’s due, Wells Fargo has put some effort toward battling racism. For example, CEO John Stumpf says on the company’s website that diversity allows his firm to better serve the needs of its diverse customers, which in turn leads to more value for stockholders. Wells Fargo has also established groups such as its Enterprise Diversity Council, whose tasks include creating strategies for earning more business from minorities and making recommendations for the development of staff. With more than a third of his team consisting of minorities and 59% of it women, Stumpf has to treat them fairly in order to lead a ship with a fully willing, loyal and effective crew.
Yet Wells Fargo’s obvious incentive to give its staff and customers equal rights hasn’t spared it from other lawsuits involving minorities. In July 2009 Illinois Attorney General Lisa Madigan sued Wells Fargo for allegedly targeting African-American and Latino borrowers for sales of the lender’s poorest quality and most expensive mortgages. In April 2011 the Securities and Exchange Commission fined Wells Fargo Securities LLC, formerly known as Wachovia Capital Markets LLC, more than $11 million for charging undisclosed excessive markups in the sale of a collateralized debt obligation-related investment to the Zuni Indian Tribe and an individual investor. And this April the National Fair Housing Alliance said it filed a federal housing discrimination complaint against Wells Fargo, alleging the bank maintained and marketed foreclosed properties in white areas much better than those in neighborhoods of color.
The recent lawsuits against Wells Fargo are one red flag among various others that contribute to an F on the firm’s corporate governance. Its financial statements reflect an AGR score of 6, indicating higher risk than 94% of companies. That’s an improvement from an AGR of 1 in June 2010.
CEO Stumpf said on Wells Fargo’s website that the firm’s progress on its “vision and values” has not been perfect. He also said companies are made up of human beings. They make mistakes, admit them, learn from them, and then keep moving forward with even more understanding. “We learn just as much from failure (perhaps more) as we do from success,” he said.
Given that exemplary attitude, it’s interesting that Wells Fargo continues to deny the allegations Memphis and Shelby made. The company could indeed be innocent, but by settling and avoiding a protracted set of questions, they gave up their golden opportunity to learn whether the court also agrees.
Region: North America
Market Cap: $ 177,006.7mm (Large Cap)
ESG Rating: F
AGR: Very Aggressive (6)