WFC Wells Fargo and Company

By Emily Glazer 

Wells Fargo & Co. said Tuesday that it was downgraded on a key regulatory rating that focuses on its ability and willingness to lend to, invest in and service lower-income populations.

The San Francisco bank received a "needs to improve" Community Reinvestment Act rating because of its regulatory consent orders related to its sales practices scandal, the bank said.

The bank added in a securities filing Tuesday that the rating results in the loss of expedited processing of applications for certain activities. The bank also must receive prior regulatory approval for other activities, such as issuing or prepaying certain debt, opening or relocating bank branches or making certain investments.

The rating could impact the bank's relationships with certain states, counties, municipalities or other public agencies.

The Community Reinvestment Act rating covered 2009 to 2012. The bank has been looking as far back as 2009 and 2010 to uncover consumer financial harm related to its aggressive sales tactics.

In September, it paid a $185 million fine and was dealt regulatory consent orders for opening as many as 2.1 million accounts using fictitious or unauthorized customer information.

In congressional hearings in September, politicians grilled now-former CEO John Stumpf about whether more vulnerable customer segments, including lower-income populations, were impacted more than others. Mr. Stumpf didn't give specifics at the time and a spokeswoman said Tuesday the bank doesn't collect race and ethnicity information for deposit and credit card accounts, so it doesn't know whether some people were more affected than others. Wells Fargo has been r efunding customers for the past several months.

Wells Fargo Chief Executive Timothy Sloan said in a statement the bank is "disappointed with this rating given Wells Fargo's strong track record of lending to, investing in and providing service to low- and moderate-income communities," but added that the bank is committed to addressing the Office of the Comptroller of the Currency's concerns.

The Wall Street Journal in December reported that this downgrade would be likely.

In the last two years, the OCC and other bank regulators have more aggressively lowered other banks' ratings, including last year those of Fifth Third Bancorp and Regions Financial Corp. based on the rule, which has been around for decades.

Comptroller of the Currency Thomas Curry told a gathering of housing lenders late last year that the agency would soon be releasing more CRA grades as the agency works through a backlog of exams, some which were done years ago.

Wells Fargo hasn't had a CRA grade released since 2009 and banks are supposed to be examined every three years.

Mr. Sloan also said in a statement that the bank plans to ask the OCC "to accelerate the timing of its next exam so that we may continue to serve most effectively the low- and moderate-income communities in which we operate."

Wells Fargo said Tuesday this is the first time since 1994, when exam results began being publicly disclosed, that Wells Fargo's final rating has been less than the highest mark, or "outstanding."

The bank added that on the "performance aspects" of the exam, the OCC rated Wells Fargo's outstanding overall and received "outstanding" grades on individual components such as lending and investment that make up a large part of the exam. It received a "high satisfactory" score on the service component and was rated a "satisfactory" or better across states and metropolitan areas reviewed by the OCC.

Over the past four years, Wells Fargo donated more than $1.1 billion to nonprofits, educational programs and schools including nearly $578 million to organizations that support diverse communities.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

March 28, 2017 14:58 ET (18:58 GMT)

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