Wells Fargo uncovers more fake accounts in drawn-out scandal

By Dan Freed

(Reuters) - Wells Fargo & Co (WFC.N) hiked the tally of accounts that were potentially opened without customers' knowledge by over a million on Thursday after an expanded review of improper sales practices.

The revelation is the latest chapter in a year-long scandal at the San Francisco bank and puts it back in the crosshairs of lawmakers as they prepare to return to Congress next week.

Democratic U.S. Senator Elizabeth Warren, a leading voice on consumer finance issues, tweeted "Unbelievable" after Wells Fargo said it had found an additional 1.4 million accounts were potentially opened without permission, bringing the total estimate to about 3.5 million.

She repeated her call for the bank's top brass to appear before the Senate Banking Committee.

"Every new disclosure seems to expand the scope of the bank’s troubles, which creates the perception that the scandal is getting bigger rather than going away," said Jaret Seiberg, an analyst with Cowen Washington Research Group.

"We believe the political and regulatory spotlight will continue to shine brightly on Wells Fargo. That is likely to limit the ability of the bank to grow aggressively."

The scandal over phony accounts first erupted last September, when Wells Fargo reached a $190 million (147.07 million pounds)settlement with regulators over the matter. That led to the departure of its veteran chief executive John Stumpf, a divisive shareholder meeting and disclosures of other sales practice problems ranging from unwanted auto insurance to improper mortgage fees.

Once lauded on Wall Street for its ability to sell more products to customers than any of its big-bank rivals, Tim Sloan, who took over as chief executive last year, faces a long slog to revive the bank's reputation.

The problems reported on Thursday came after a third party hired by Wells Fargo examined accounts stemming back to 2009, a broader timeframe than a review conducted last year. The bank previously disclosed the expanded review in a quarterly securities filing, but not its results.

Wells will return $2.8 million to customers who appear to have had consumer and small business accounts opened without permission. It also uncovered about 528,000 potentially unauthorized online bill pay enrollments, a newly disclosed problem, and will return $910,000 to customers who were affected.

The bank also faces multiple regulatory probes and private lawsuits.

A pending settlement for one private lawsuit led Wells to review accounts dating back to 2002, Sloan said on a conference call with reporters.

"With the expanded analysis now complete, we will focus on remediation and making things right for our customers," he said.

The unauthorized online billpay fees were small, Sloan said, often $1. They resulted from branch employees setting up accounts in order to achieve product sales goals that have since been eliminated. The bank has refunded these amounts.

Wells Fargo shares were down 0.8 percent in early afternoon trading, underperforming the S&P Financial (.SPSY) which was flat.

The additional refunds amount to a tiny fraction of the bank's quarterly earnings, but investors who spoke to Reuters in recent weeks said they were less worried about the hard costs than a degradation of the bank's once-pristine brand.

They also expressed concern about Wells becoming an easy political target going into the midterm elections.

Warren Buffett, who runs Wells Fargo's largest investor, Berkshire Hathaway Inc (BRKa.N), said this week he still considers it a great bank despite selling some of his holdings. But he acknowledged the bank will likely find more problems now that it is shining a light in dark places.

"There's never just one cockroach in the kitchen," he said on CNBC.

(Reporting by Dan Freed in New York; Additional reporting by David Henry and Olivia Oran; Editing by Lauren Tara LaCapra, Bernadette Baum and Carmel Crimmins)