© Reuters. FILE PHOTO: A Wells Fargo bank logo is pictured on a building in North Miami, Florida March 19, 2016. REUTERS/Carlo Allegri
By Jonathan Stempel
NEW YORK (Reuters) – Wells Fargo (NYSE:) & Co has agreed to pay $1 billion to settle a lawsuit accusing it of defrauding shareholders about its progress in recovering from a series of scandals over its treatment of customers.
A preliminary settlement of the proposed class action was filed late Monday night with the federal court in Manhattan, and requires a judge’s approval. The dollar amount was suggested by a mediator, court papers show.
Wells Fargo has operated since 2018 under consent orders from the Federal Reserve and two other financial regulators requiring that it improve governance and oversight.
The fourth-largest U.S. bank is also subject to an asset cap by the Fed, which can impede its ability to compete with larger rivals JPMorgan Chase & Co (NYSE:), Bank of America Corp (NYSE:) and Citigroup Inc (NYSE:).
Shareholders accused Wells Fargo of overstating how well it was complying with those orders, and that the bank’s market value fell by more than $54 billion over two years ending in March 2020 as the shortcomings became known.
Wells Fargo did not immediately respond to requests for comment outside business hours.
The San Francisco-based bank denied wrongdoing, and settled to eliminate the burden and expense of litigation, court papers show. Lawyers for the plaintiffs may seek up to 19% of the settlement fund for legal fees.
Wells Fargo has since 2016 paid or set aside several billion dollars to resolve regulatory probes and litigation concerning its business practices.
These included that it opened about 3.5 million accounts without customer permission, and charged hundreds of thousands of borrowers for auto insurance they did not need.
Chief Executive Charlie Scharf has said repairing the reputation of the 171-year-old bank founded by Henry Wells and William Fargo has taken longer than he expected when he took over in 2019.
“When I arrived, we did not have the culture, effective processes, or appropriate management oversight in place to remediate weaknesses on a timely basis,” he said in his March 3 letter to shareholders. “Today, we approach these issues differently.”
The case is In re Wells Fargo & Co Securities Litigation, U.S. District Court, Southern District of New York, No. 20-04494.