Angry U.S. lawmakers heaped another round of blistering criticism on Wells Fargo’s CEO, pressing Thursday for details about what senior managers knew about allegedly illegal sales practices and when any concerns were disclosed.
Chief executive officer John Stumpf, newly stripped of tens of millions in compensation, told the House financial services committee that the bank is expanding its review of accounts and will evaluate executives’ roles. But as during the grilling he received last week from a Senate panel, Stumpf remained on the defensive.
- Wells Fargo fined $185M for making up 2 million fake bank accounts
- Wells Fargo executives to forfeit millions in bonuses
Several lawmakers, both Republican and Democrat, alleged that Wells Fargo’s sales practices may have violated federal laws, including the federal racketeering laws, which would constitute a criminal offence. Federal regulators have not said if they have referred the Wells Fargo case to the Department of Justice.
“Fraud is fraud. Theft is theft,” committee head Rep. Jeb Hensarling told Stumpf.
Stumpf reiterated his words of last week, that he was “deeply sorry.” He said the bank was looking at accounts further back, to 2009, and that bank executives’ roles will be reviewed “across the board” in an inquiry by Wells Fargo’s outside directors.
Stumpf told lawmakers that the bank will end all product sales goals by Saturday. He also told members of the House financial services committee that fewer than 25 per cent of roughly 20,000 customers contacted following the opening of a new credit card said they did not want the card or did not recall opening the card.
Stumpf said any fees for those cards unwanted cards will be refunded, as will fees on unwanted deposit accounts.
“We should have done more, sooner,” Stumpf said.
U.S. and California regulators have fined San Francisco-based Wells Fargo $185 million US, saying bank employees trying to meet sales targets, opened up to 2 million fake deposit and credit card accounts without customers’ knowledge. Regulators said they issued and activated debit cards, and signed people up for online banking without permission. The abuses are said to have gone on for years, unchecked by senior management.
Stumpf came under a sustained assault from lawmakers, who face re-election in a little over a month. He insisted that Wells Fargo had taken actions prior to 2013 to bolster its legal compliance and maintain high ethical standards. He bristled at depictions of the culture of Wells Fargo — a bank with origins in the California gold rush — as elevating sales and profits at the expense of ethics.
“This is the behaviour of people that we found, that we did not want,” Stumpf insisted.
For many of the angered lawmakers, the scandal is personal. They hold accounts with Wells Fargo or have taken out mortgages. “If I could, I’d pay it back,” said Hensarling.
Republican Rep. Patrick McHenry, who represents North Carolina — where Wells has a large presence due to its purchase of Wachovia in 2008 — was particularly incensed. “You have broken long-standing ethical standards inside the company.” McHenry said.
Stumpf noted new leadership at the retail bank business and the accelerated elimination of sales goals. He said about 10 per cent of the 5,300 fired employees were branch managers, while others terminated were above that level, supervising the branch managers.
He also cited the compensation he must return. The Wells Fargo board said it is stripping Stumpf and the executive who ran the retail banking division of millions of dollars in pay. Stumpf, who earned $19.3 million last year, will forfeit $41 million in stock awards.
He also is giving up any bonuses for this year, as is Carrie Tolstedt, the former head of the retail operation. Tolstedt is forfeiting $19 million of her stock awards, and her planned departure was made immediate.
Members of Congress also raised question whether other banks had similar toxic sales cultures like Wells. “We have Wells Fargo before me, but I don’t think you should be alone in this joyous experience,” said Rep. Brad Sherman.
Stumpf insisted customers’ loyalty to Wells Fargo remains as strong as ever. He also defended his dual roles as chief executive and chairman, positions that some critics have suggested should be split.
Members of Congress also pushed Stumpf on when he informed Wells Fargo’s board about the sales practice scandal, and whether Wells may have violated Securities and Exchange Commission regulations by not informing investors.
Rep. Carolyn Maloney, a New York Democrat, asked Stumpf about his personal sales of company shares at a time when she said he apparently had learned about the fake-account sales practices. Stumpf said he sold the stock with the proper ethics approvals and “with no view” of any misconduct at the bank.
Stumpf also said Wells did not put language in their regulatory filings until this summer, three years after a Los Angeles Times investigation and a year after a Los Angeles City Attorney’s lawsuit.
Stumpf again promised action to make things right for customers who were affected. Customers already have been refunded $2.6 million in fees slapped on unauthorized products, the bank says.
The consumer banking giant, which is also the biggest U.S. mortgage lender, fired about 5,300 employees starting in 2011 in connection with the sales practices. Stumpf said all of the terminated employees were fired because of unethical conduct — not because they failed to meet sales goals.
Whether the unusual takeback from his compensation will be enough to save Stumpf’s job is hard to say.
It was “a step in the right direction, but there are still dozens of unanswered questions,” said Sen. Sherrod Brown of Ohio, the Senate Banking Committee’s senior Democrat. He and the other Democrats on the panel asked Stumpf on Wednesday to answer a series of 58 questions, including nearly two dozen that they said he failed to answer at the hearing last week or for which he promised to provide fuller information.
Few top bank executives have had their compensation clawed back in the years since the financial crisis starting in 2008. While unusual, the move by the board “was the right thing to do,” said Charles Elson, a professor and director of the Weinberg Center for Corporate Governance at the University of Delaware.