Wells Fargo shares dive following the Fed sanctions

US bank Wells Fargo &Company’s (WFC) shares slipped almost 9 percent in Monday’s pre-market trading, Financial Times reported. The steep drop in the firm’s shares is due to the Federal Reserve’s decision to punish the bank following the fake account scandal in 2016.

The central bank announced it would impose penalties on the lender last Friday after markets closed. Under the measure, Wells Fargo is ordered to replace four of its board members by the end of the year. The San Francisco-based firm will also not be able to grow its asset.

After the announcement of the sanction, shares plunged 8.9 percent. If the market had continued, 8.9 percent drop would have been the company’s shares worst performance in one day since 2011.

According to a source close to the central bank, the move (to replace the current members of the board) was necessary to ensure board members' responsibility and awareness of handling the misconduct.

The Fed also orders US’third largest bank to submit a new risk management plan within 60 days. The company will have a third-party review on Sept.30, 2018. It is likely that the sanctions will be lifted on that day.

The impact of the scandal

The bank’s CEO Timothy Sloan vowed that his side will take the Fed measures seriously. "We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns," CEO Timothy Sloan said in his release as quoted by BusinessInsider.

The scandal broke out when Wells Fargo announced quarterly earnings and revenue that surpassed analysts’ estimation. But later it was found out the creation of 3.5 million accounts under the names of its customers helped drive the company's sales performance.

The soaring legal expenses has forced the bank to close more than 800 branches by 2020, as WFC announced last month.

Last year, it shut down more than 200 branches. WFC is the bank with the highest number of office branches.

Wells Fargo expects to cut $2 billion operational cost this year. Last quarter, the bank’s litigation expenses skyrocketed to $3.3 billion.

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