U.S. District Judge William Alsup San Francisco said shareholders failed to adequately allege that Wells Fargo unjustifiably inflated the quality of its loans, understated loss reserves or misrepresented its lending practices.
Shareholders said they lost billions of dollars in Wells Fargo stock as the San Francisco-based bank gradually revealed in 2020 the “previously unknown level of risk” in its commercial loans.
The proposed class covers shareholders in the three years ending October 13, 2020, a period when Wells Fargo’s share price fell 54%.
But the judge found that Wells Fargo had underwriting standards that “have been found to be broadly accurate or conservative, and not inflationary,” and did not mislead shareholders about the size of loans relative to the value of borrowers’ businesses.
Since he found no false or misleading statements, Mr. Alsup did not inquire whether Wells Fargo intended to defraud anyone.
He said shareholders, led by the Employees’ Retirement System of the State of Hawaii, could file an amended lawsuit to fill the gaps in their case.
Lawyers for the shareholders did not immediately respond to requests for comment. Wells Fargo and its attorneys did not immediately respond to similar requests.
Since 2018, Wells Fargo has operated under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight. The Fed also capped the bank’s assets at $1.95 trillion.
The bank has faced widespread criticism over its practices since 2016, including for opening accounts without customers’ permission and charging borrowers for car insurance they didn’t need.
The case is: Employees’ Retirement System of the State of Hawaii v. Wells Fargo & Co, US District Court, Northern District of California, No. 20-07674.