Happy Friday and welcome back to On The Money. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.
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THE BIG DEAL–Wells Fargo to pay $3B settlement over sales scandals: Wells Fargo has agreed to pay $3 billion to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to settle charges over the bank’s series of sales scandals that drew unprecedented federal penalties, federal officials announced Friday.
Under the terms of the settlement, which includes $500 million in restitution for the bank’s investors, Wells Fargo admitted “that it collected millions of dollars in fees and interest to which the company was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information.”
“This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” said U.S. Attorney Nick Hanna.
“We are hopeful that this $3 billion penalty, along with the personnel and structural changes at the bank, will ensure that such conduct will not reoccur,” Hanna added.
I break down the settlement here.
What comes next for Wells Fargo: Wells Fargo chief executive Charles Scharf said in a Friday statement that “While today’s announcement is a significant step in bringing this chapter to a close, there’s still more work we must do to rebuild the trust we lost.”
- Wells Fargo has been banned from increasing the size and value of the company under a 2018 order from the Federal Reserve, an unprecedented penalty for a U.S. bank.
- The Office of the Comptroller of the Currency also announced in January that it is seeking civil charges against five former Wells Fargo executives.
- Scharf is scheduled to testify before the House Financial Services Committee on March 10 in one of three hearings on Wells Fargo’s sales scandals, planned for next month. Wells boardmembers Elizabeth Duke, a former Federal Reserve governor, and Jim Quigley will also testify before the Financial Services panel in a March 11 hearing.
LEADING THE DAY: Dow drops more than 200 points following renewed coronavirus fears: The Dow Jones Industrial Average closed with a loss of 227 points Friday, a 0.8 percent decline, as concerns about the effects of the coronavirus grew.
The drop took the stock index below 29,000 for the first time in 11 days. Other indexes also fell from record highs they hit earlier in the week.
- The coronavirus has killed more than 2,000 people in China and infected more than 75,000 people globally.
- An analysis from Goldman Sachs this week noted that the stock market could be due for a correction as it continued to fly high despite the virus’s spread. Stocks may be flying high in part because of low yields in the bond market.
- Larry Kudlow, President Trump’s top economic adviser, told CNBC Friday that low bond yields were not a sign of economic softness, asserting “I think you have a lot of mood swings here, and I don’t think it reflects the fundamentals.”
Even so, we got another blip of not super great economic news this week. U.S. private sector output slumped in February as service sector activity declined for the first time in four years under pressure from the spreading coronavirus, according to data released Friday.
The IHS Markit U.S. composite output index, a closely watched gauge of overall U.S. private sector business activity, fell to 49.6 in February after notching 53.3 in January. A reading above 50 indicates increasing economic activity, while a reading below 50 indicates a contraction.
A rare drop in U.S. service sector activity, a driving force behind a record-stretch of economic growth, was responsible for February’s overall slowdown in business output. IHS Markit’s service sector index fell to 49.4 in February, the lowest level since the October 2013 government shutdown.
Why it happened: IHS Market chief business economist Chris Williamson attributed the decline to the coronavirus outbreak “manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions.”
Williamson added that “companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year,” but a survey of business owners showed “a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”
GOOD TO KNOW
- Former Goldman Sachs chief executive Lloyd Blankfein said he may vote for President Trump over Sen. Bernie Sanders (I-Vt.) if the progressive firebrand wins the party’s 2020 presidential nomination.
- Sens. Elizabeth Warren (D-Mass.) and Edward Markey (D-Mass.) are urging the IRS to include a representative from the agency’s in-house watchdog on its core team focused on implementing a bipartisan IRS modernization law.
- The typical income for an American male is no longer enough to cover major costs including housing, health care, transportation and education, according to a new study from the right-leaning Manhattan Institute.
RECAP THE WEEK WITH ON THE MONEY:
- Tuesday: GAO to investigate Trump aid for farmers | Bloomberg calls for bolstering Dodd-Frank | Where the 2020 Democrats stand on taxes
- Wednesday: Bloomberg reignites Democratic fight over financial crisis | Stocks close at record highs as Fed sees steady rates | IRS to boost visits to high-income earners who haven’t filed returns
- Thursday: Trump seeks to distance strong economy from Obama policies | Mulvaney calls out GOP for deficits under Trump | Kickstarter union seen as breakthrough for tech activists
Updated at 8:22 p.m.