In the latest chapter of the Wells Fargo (WFC -1.21%) saga, the bank has agreed to a $1 billion penalty from the CFPB -- the largest penalty ever levied by the agency. In this clip, host Michael Douglass and contributor Matt Frankel discuss what this means to investors.

A full transcript follows the video.

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This video was recorded on April 23, 2018.

Michael Douglass: First off, Wells Fargo was fined $1 billion from the Consumer Financial Protection Bureau.

Matt Frankel: Right. The big deal is not so much that it's $1 billion. That's really not that much to a bank like Wells Fargo. We saw much, much bigger fines a few years ago in the aftermath of the financial crisis. This is significant for a few reasons. One, it's the largest penalty ever levied by the CFPB. And, it's the latest chapter in Wells Fargo's drama. It's not just this one $1 billion fine. We'll go through in a minute, but, this is the seventh or eighth major news headline they've had in the past year or two.

Douglass: Yeah. With that in mind, let's go ahead and break down exactly what happened with this penalty and then, as you noted, we'll expand back further. So, they had wrongly charged insurance on some drivers, and they charged mortgage customers excessive fees. And this affected over half a million customers, about 600,000 customers. And just the refunds on those fees will cost the bank about $300 million, in addition to the billion dollars that they've already paid out.

Frankel: Right. I'll just give you a little bit of background on both of those. The mortgage incident they admitted to right away. What was happening was, they would agree to lock in customers' rates for a certain amount of time based on them getting their paperwork in by a certain deadline, and if they didn't, they were subject to a fine. Well, Wells Fargo themselves were responsible for this paperwork being late in a lot of cases, and were still charging these customers hefty fines, which, obviously, that's just bad business.

Douglass: Right.

Frankel: [laughs] And in the car insurance case, that was the bigger of the two. The car insurance was about 500,000 out of the 600,000 people. This is a standard industry practice -- banks can force you to get in an auto insurance policy of their choosing if your current coverage lapses. The bank is loaning you money on the car, so it protects them to have insurance. But Wells Fargo was doing this for people who had insurance.

I was actually one of the ones who got a note in the mail -- I don't know if I ever told you this, Michael -- saying that my insurance had lapsed, and they were about to start this new policy on me if I didn't do anything about it. Fortunately, I realized their error and pointed it out, but a lot of people didn't. And their insurance policies, from what I read, were very expensive relative to what people were paying on their current insurance.

Douglass: Yeah. So, just, all around, as you put it, bad business. Let's go ahead and step back. Listen, every company makes mistakes. No company is perfect. But Wells Fargo has been making quite a few of them, it seems. Heading all the way back to September 2016, the fake accounts scandal, which many of you have heard about, if not on Industry Focus then on literally every major news program in America, was revealed. Initial estimates said about two million accounts were affected by fake accounts that were opened in people's names without their knowledge by bank employees who were trying to hit quotas. 5,300 employees were fired. The CEO, John Stumpf, retires in October. Of course, it just continues from there.

Frankel: Yeah. That's a pretty big number, two million people. So, chances are pretty high that some of our listeners were affected by this.

Douglass: Right.

Frankel: So, if that was bad enough, then from then until now -- December of 2016, the bank was punished for failing to comply with certain Dodd-Frank regulations. June of the next year, that's when this mortgage mess happened, where they were charging people for late paperwork that wasn't really late on their fault. The next month, in July of 2017, that auto insurance mishap was revealed. Then, the next month, in August, that number of fake accounts went from two million to three and a half million, because they widened the timeframe they were looking at and found a whole lot more.

[laughs] And I wish I were done, but I'm not. In October of that same year, the mortgage fines were revealed. Then, in February of this year, the Federal Reserve actually did something that they've never done before -- they issued a penalty that prevents Wells Fargo from growing beyond its size at the end of 2017 until they can show improvement, as the Fed put it. And it's really unclear what that means. So, right now, not only is Wells Fargo reeling from all these scandals and probably losing some customers, they're really limited to what they can do to build their business back up.

Douglass: Right. And I think that, even more broadly than that, we've also seen Wells Fargo have tremendous execution difficulties. When we're talking about big bank earnings, it's become this broken record the last couple of quarters where we'll say, "Yeah, Citigroup, JPMorgan, Bank of America, they're all doing great. Here's what's going on. OK, let's turn to Wells Fargo now," which has generally been a very different story. Slower growth for a number of reasons, but also just, in general, a struggle on execution.

And it's interesting, because as investors, thinking long-term here, the way we have to think about this is, or, at least the way I've thought about it is, this bank that has historically been a tremendous bank, the big bank that was always held up as the good one, it turns out, has really fallen on hard times. Is this a buying opportunity? And for me, at least, the answer is no, because I have no clear sense that Wells Fargo will be able to execute at anywhere near its former glory while also cleaning up its practices. And, frankly, it needs to clean up its practices. That's not optional. And in tandem with that, it's not clear to me that they're going to be able to really effectively prosper, and ultimately that's what I'm looking for in a stock.

Frankel: Not any time soon, anyway. In full disclosure, right after the fake accounts scandal came out, I wrote a few articles in support of investing in Wells Fargo on the dip. That was before all of this other stuff came to light. The thing that really stands out to me from an investor's standpoint is the Federal Reserve's action. Like I said, not only are they reeling from all these scandals, but your whole investing thesis is, you want to invest in stocks that are going to grow over time. And this takes away that ability. So, from an investor's standpoint, I wouldn't even consider, no matter how low the stock goes or no matter how bad things look, I wouldn't consider investing in Wells Fargo until the Federal Reserve's penalty is completely lifted.

Douglass: Yeah. To be honest, that's where I am, too, so I think that's fair. Interestingly, by the way -- this is something that you notice in the market, and listeners who have written in have heard me talk about, when you try to predict the market in the short-term, you're trying to impose rationality on something that's fundamentally irrational. One of the things we've seen is, the market tends to hate uncertainty. So, even a certain bad outcome, in a lot of ways, seems to be preferable to an uncertain outcome where it's not clear what's going to happen. So, the penalty from the CFPB, the billion dollars, that was exactly what was expected, so the stock was actually up on the news. Which, again, when you hear about $1 billion a company is going to have to pay out, which is going to lower earnings by $0.16 a share in 1Q 2018, usually you don't really see that as a piece of good news. But, because it removed this overhang of uncertainty, that's why the stock was up.

Frankel: Yeah, definitely. Like you said, it was very expected. Wells Fargo put some intentionally very vague language in their earnings report, saying they would have to restate earnings once this was finalized. Turns out, it was finalized just a few days later, but the way they worded it sounded like the penalty could potentially be a lot more. So, when it came out that the actual penalty that everyone agreed to and it's settled and done was only $1 billion -- only -- [laughs] -- then, investors breathed a little sigh of relief there.

Douglass: Yeah. What's $1 billion between friends, right?

Frankel: [laughs] Especially Wells Fargo.

Douglass: Indeed.