Question

Following public revelations of pressures on bank staff to set up fraudulent accounts in order to reach sales quotas, the CEO of Wells Fargo Bank was forced to apologize to and recompense customers for whom the bank had set up false credit card and auto loan accounts. As a consequence, over 100,000 account managers were terminated, a $186 million fine was paid to the U.S. government, the CEO was forced to resign, and the company's stock price also sharply declined. Which of the following costs did Wells Fargo incur?

a. only visible and internal administrative costs
b. visible and intangible costs
c. visible but not intangible costs
d. internal administrative costs, tangible costs, and intangible costs
e. internal administrative costs but not visible costs

Answer 1

Wells Fargo incurred substantial visible costs, including a $186 million fine and a significant decline in stock price, after fraudulently creating customer accounts. The termination of staff and CEO resignation also brought considerable internal administrative costs to the company.

Step-by-step explanation:

Wells Fargo faced several costs following the scandal involving the creation of fraudulent accounts and enrollment of customers into unwanted insurance programs. One significant visible cost was the $186 million fine paid to the U.S. government. This is a straightforward expense that can be quantified and is directly related to the penalties imposed for the bank's actions. Additionally, the termination of over 100,000 account managers represents substantial internal administrative costs. These costs include severance payments, the administrative burden of managing such a large-scale layoff, and the potential costs associated with hiring and training new employees to replace those who were terminated.

Moreover, the bank suffered a sharp decline in stock price, which is a visible cost reflecting investors' loss of confidence and the diminished market valuation of the bank. The forced resignation of the CEO can also be seen as an internal administrative cost, as the search for and transition to a new leader is both time-consuming and expensive. It is important to note, however, that while some costs are visible and tangible, others may be less quantifiable but still significant, such as reputational damage and the potential loss of customer trust, which can have long-term financial implications for the institution.