Wells Fargo's latest snafu renews a question: Can an insider fix the bank?

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Wells Fargo once again has been rocked by revelations of inadequate risk controls, and the situation is rekindling questions about whether its management is in full command.

This time, instead of another snafu in Wells' retail division, the problems are on the commercial lending side of the house. In 2017 and early 2018, bankers fudged information on customer documents, such as birthdays and Social Security numbers, in order to meet a regulatory deadline, according to a news report Thursday.

The revelations raise a number of new questions for Wells, a company already under immense public scrutiny. Among them: How pervasive were the problems in the commercial banking division? What kind of procedures did the company have in place to spot misbehavior? And what does this all mean for CEO Tim Sloan, who previously led the commercial division?

“Unfortunately for Wells Fargo, it’s emerging that these process weaknesses are in various places,” said Cliff Rossi, a former risk executive at Citigroup, who now teaches at the University of Maryland. “Something is not quite right there.”

While the conduct reported in The Wall Street Journal on Thursday raises concerns, key details are fuzzy. It’s not yet known, for instance, why bankers were motivated to falsify the documents, beyond meeting a deadline. Also unclear is how many employees were involved — or whether similar incidents have occurred in the past.

The answers to those questions will determine whether Wells’ latest misstep turns into a full-fledged scandal, or simply fades into the background in an otherwise frenetic news cycle, experts said.

“The magnitude of the problem is the key element, not whether the violation occurred,” said Brian Tayan, a corporate governance researcher at Stanford University. He added that most big banks, given the sheer size of their workforces, have isolated cases of misbehavior, he added.

“The critical question is whether they were systemic, or allowed to spread and perpetuate because of poor oversight by management,” Tayan said.

Charles Elson, professor at the Jon L. Weinberg Center for Corporate Governance, agreed. “How significant were the changes? Is this confined to a small group?” he said. Elson is a Wells shareholder.

What the news unquestionably does is add to the pressure on Amanda Norton, a former JPMorgan Chase executive who will take over this summer as Wells' new chief risk officer.

The latest revelations came as Wells tries to move beyond its string of retail scandals — including by launching an ad campaign designed to win back the trust of customers.

During the company’s annual investor day last week, an analyst asked Sloan whether he was confident that the string of negative headlines would soon come to an end.

“I think we’re through most of the historical review,” Sloan said in response. “If we want to be the best risk-managed firm in the industry, we’ve got to go beyond meeting the very reasonable expectations of our regulators."

In a statement provided by a spokeswoman Thursday, Wells said it cannot comment on regulatory matters, but noted that the company has built “more robust internal processes” over the past several months.

“This mater involves documents used for internal purposes,” the spokeswoman said. “No customers were negatively impacted, no data left the company, and no products or services were sold as a result.”

Experts said Thursday that latest revelations of risk management problems will likely add fuel to the criticisms of Sloan's most vocal critics. Sen. Elizabeth Warren, D-Mass., and California Treasurer Jon Chiang have recently called on Sloan to step down.

Still, observers stopped short of saying whether the revelations ultimately call into question Sloan’s ability to lead the company — and turn it around.

Compared with other recent scandals — including bankers opening fake accounts in customers' names, or overcharging borrowers for auto insurance — what distinguishes the latest problems in the commercial bank is that they occurred on Sloan’s watch as CEO.

The latest problems also took place in a part of Wells that, for the most part, has been scandal-free. Still, regulators are investigating the company's foreign exchange business.

When Sloan was named CEO in October 2016, for instance, observers touted his prior experience as head of the commercial bank as evidence that his hands were clean, and that he had a clear vision to clean up the problems in the retail division.

Whether that argument holds true in the weeks ahead remains to be seen. According to the report in the Journal, which cited people familiar with the matter, Wells discovered, after investigating, that the misbehavior "wasn’t an isolated incident."

“That raises a lot of questions about the compliance culture at the company,” said Don Hawthorne, an attorney who focuses on financial litigation at Axinn.

And if the fudging of client documentation relates to anti-money-laundering or Bank Secrecy Act compliance, the result could be a costly one, said Rick Parsons, a former risk executive with Bank of America who now writes about risk management and other financial services topics.

"Historically, the biggest regulatory fines have been in the area of AML/BSA breakdowns," Parsons said.