Wells Fargo announced Tuesday it will eliminate sales goals for retail bankers, less than a week after the San Francisco-based company was fined by regulators for the opening of fraudulent accounts.
The move marks a major switch in practices at a bank known across the industry for its prowess at cross-selling, the practice of getting a customer to buy multiple products.
Wells Fargo, whose largest employment base is in Charlotte, said the change will take effect Jan. 1.
Speaking at a banking conference in New York on Tuesday, Chief Financial Officer John Shrewsberry said the move is intended to make certain Wells Fargo’s customers have “the full confidence” the bank is acting in their best interests.
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“We think that we can adapt our business model, take sales goals out and still have a growth culture,” Shrewsberry said.
The move also comes as CEO John Stumpf prepares to testify before Congress on revelations that Wells Fargo’s employees opened millions of fraudulent customer accounts to meet sales goals.
Those findings were outlined in settlement agreements Wells Fargo reached Thursday as it paid $185 million in fines to the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the city and county of Los Angeles.
On Monday, Senate Banking Committee Chairman Richard Shelby, an Alabama Republican, announced plans to hold hearings on the matter Sept. 20. That decision came after five Democratic Senators, including Elizabeth Warren of Massachusetts, wrote a letter to Shelby on Monday urging immediate hearings.
The allegations have marred the reputation of Wells Fargo, the third-largest U.S. bank by assets and the nation’s biggest home lender.
“We are sorry,” Stumpf told CNBC’s Jim Cramer on Tuesday night. “We deeply regret any situation where a customer got a product they did not request.”
Rep. Elijah Cummings, who sits on the House Committee on Oversight and Government Reform, said he met Tuesday with Wells Fargo President Tim Sloan and gave him a letter requesting documents on how the bank’s managers used “quotas, bonuses, threats and other punitive measures to perpetrate these abuses.”
Since the settlement announcement, the bank’s shares are down 5.6 percent, compared with a 0.3 percent decline in the KBW Nasdaq Bank Index, which tracks the shares of leading banks.
Committee for Better Banks, a group that advocates for better wages and working conditions in the industry, called Wells Fargo’s decision a victory for bankers facing high-pressure sales goals. But more work must be done, the group said.
“Predatory sales goals are rampant at big banks across the country,” committee member and former Wells Fargo branch manager Julie Miller said in a statement.
Richard Cordray, director of the Consumer Financial Protection Bureau, told CNBC on Monday that the behavior of Wells Fargo’s employees “should not occur at any bank.” He said he “has no indication” that similar activity “is happening on any kind of systematic basis at other banks.”
Wells Fargo’s success with cross-selling, a common practice in the industry, has helped make it attractive to investors. Stumpf told CNBC that Wells Fargo won’t discontinue the practice. “We love cross-sell,” he said.
The bank has sought to instill its cross-selling culture with sayings like “Eight is Great,” referring to the ideal number of products it wants each customer household to have.
But regulators said Wells Fargo employees under pressure to hit such targets took part in a “widespread illegal practice” by secretly opening more than 2 million deposit and credit card accounts. The bank’s employees, spurred also by bonuses for meeting goals, created phony email addresses to enroll some customers in online banking without their knowledge, regulators said.
In reaching Thursday’s settlement, Wells Fargo did not admit or deny allegations.
‘Not a revenue-generating activity’
Shrewsberry, the CFO, on Tuesday described the behavior as being isolated to “lower performers” who were seeking to meet sales goals in order to hang on to their jobs.
For Wells Fargo, such behavior did not provide a large boost to the company’s bottom line, he added.
“These bad practices were not a revenue-generating activity,” Shrewsberry said, noting that two-thirds of the behavior took place in the Southwest and peaked in 2013. Wells Fargo’s consumer banking segment accounted for about 57 percent of the company’s total revenues last year.
In addition to eliminating sales goals, Shrewsberry said Wells Fargo has taken other steps to curb bad behavior, such as mystery shopping.
Shrewsberry said Wells Fargo continues to revise the way it compensates bankers so that they act “in a manner that’s consistent with our principles.”
Independent bank analyst Nancy Bush called Well’s Fargo’s decision to drop sales goals inevitable and overdue.
“I hope that a byproduct of this change is that Wells Fargo will stop calling their branches ‘stores,’” Bush said. “They’re not there to sell cornflakes. They’re there to build trust.”
More firings ahead?
Wells Fargo has said it fired 5,300 people between January 2011 and March 2016 for secretly opening the accounts.
On Tuesday, Shrewsberry left the door open for more firings, saying the bank plans to continue its probe as part of its annual risk-review processes.
“That’s an opportunity to take a big, wide fresh look at who knew what and when,” he said.
About 10 percent of the 5,300 who were fired were in branch management positions or higher, Shrewsberry said, but he didn’t provide further details.
The number of people fired equaled about 1 percent of the bank’s total branch employment each of the five years, he said.
Wells Fargo’s fine amounts to less than 1 percent of the more than $22 billion in profit it earned in 2015. As with many settlements involving the banking industry since the financial crisis, no executives have been charged with a crime.
Treasury Secretary Jack Lew on Tuesday called the Wells Fargo issue a “wake-up call” and said employees’ behavior was “unacceptable.”
“It should remind all of us ... that culture and compensation make a difference,” he said. “It’s the kind of behavior that we need to be able to catch and stop.”