Elizabeth Warren to Wells Fargo CEO: 'You should resign'
Embattled Wells Fargo Chairman and CEO John Stumpf is stepping down from the bank he has led for nearly a decade, following intense scrutiny over a fake accounts scandal that erupted last month.
San Francisco-based Wells said Wednesday that Stumpf informed the company’s board of directors that he is retiring from the bank and its board immediately. President and Chief Operating Officer Tim Sloan will replace him as CEO and take a seat on the board.
It’s a stunning, rapid fall for a banking leader who helped guide Wells Fargo through the financial crisis and navigate the company through a successful acquisition of Charlotte-based Wachovia. The bank now has its biggest employee base in Charlotte.
Stumpf, 63, had not previously indicated any plans to step down, but pressure had mounted on the bank since it paid $185 million in fines last month to settle claims that employees opened 2 million unauthorized accounts. Federal prosecutors are investigating the bank, states have pulled business and employees and customers have filed lawsuits.
“While I have been deeply committed and focused on managing the company through this period, I have decided it is best for the company that I step aside,” Stumpf said in a statement. “I know no better individual to lead this company forward than Tim Sloan.”
Stumpf has been one of the industry’s highest-paid bankers in recent years, making $19.3 million in salary, bonus and stock last year. But the Wells board had already begun chipping away at his pay, announcing last month that he would forfeit all of his outstanding unvested equity awards, worth $41 million, and forgo his salary during a board investigation.
On Wednesday Wells spokesman Oscar Suris said Stumpf will receive no additional severance for leaving. But he’ll still retire with roughly $120 million in stock, deferred compensation and retirement benefits, according to an analysis by Chicago-based human resources consultancy Overture Group. Suris said the board’s investigation is ongoing and that he had no further updates on Stumpf’s compensation.
Stumpf resigned by sending a letter to the board on Wednesday, a source familiar with the matter said. The board has previously said it could take further compensation actions against executives as part of its investigation.
As part of the shakeup, Wells Fargo will separate the CEO and chairman posts previously held by Stumpf, a division of roles generally favored by corporate governance experts. Lead director Stephen Sanger, a former General Mills CEO, will take on the role of non-executive chairman and director Elizabeth Duke, a former Federal Reserve Board governor and Wachovia banker, will become board vice chair.
Wells veteran steps in
On Sept. 8, Wells agreed to pay $185 million in fines over allegations of “widespread illegal” sales practices that dated to at least 2011.
Regulators said bank employees, racing to meet aggressive sales goals, opened 2 million accounts that may not have been authorized by customers. More than 60,000 accounts in North Carolina and South Carolina may have been opened without customer consent.
The scandal turned a harsh spotlight on a bank that had long touted its corporate culture, boasted about its ability to sell multiple products to customers and navigated the financial crisis with its reputation and balance sheet intact. The controversy also sparked new questions about whether large banks were too big to manage and stoked debate about the effectiveness of the Consumer Financial Protection Bureau.
At two Capitol Hill committee hearings last month, Stumpf faced heated, bipartisan criticism from lawmakers, with multiple House and Senate members calling on him to resign. Sen. Elizabeth Warren, D-Massachusetts, said he had shown “gutless leadership” by placing blame on 5,300 lower-level employees who were fired while top executives kept their jobs.
After Wednesday’s announcement, Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, said Wells still needs to be held accountable for problems with its culture.
“We are still waiting for answers as to how Wells Fargo plans to right its wrongs against customers and the low-paid employees who weren’t given the benefit of a retirement package when they were fired for refusing to cheat,” Brown said.
Sloan, 56, had been seen as the likely eventual successor to Stumpf since he was named president in November 2015. He is a Wells Fargo veteran who came up through the commercial side of the bank, but gained oversight of the community banking operation when he took on his new role.
In congressional testimony, Stumpf said it was Sloan who told Carrie Tolstedt, the former head of community banking, that the company was looking to go in another direction. She announced her retirement in July and has since left the company.
Sloan lives in the Los Angeles area but has an office in San Francisco. His parents live in Davidson.
Earlier this week, he announced changes to the management team that reports to him, including creating a new technology-innovations group. He’ll likely lead a conference call with analysts on Friday when the bank reports third-quarter earnings.
In a Wednesday evening interview with the Observer, Sloan said Sanger called him earlier in the day to tell him the board named him CEO. Wells Fargo, he said, still faces challenges to restore its image – “what was 35 days ago a very storied reputation for an incredibly successful company.”
He added: “We need to re-earn and re-gain the trust of all of our stakeholders, but in particular our customers.”
Independent bank analyst Nancy Bush said Wednesday’s move “had to happen,” calling it a “big step” for the bank to move past the controversy.
Sloan will do “just fine” in the role, but the departure of Stumpf will not silence all of the bank’s critics, Bush said.
“There is no end,” she said. “This is going to go on for quite a long time. There’s going to be other heads to roll.”
Since the settlement, Wells stock has fallen 9 percent, but in after-hours trading Wednesday, the shares were up 1.65 percent to $46.07.
Stumpf has been with the bank since joining Minnesota-based predecessor Norwest in 1982.
The Minnesota native is fond of telling folksy stories about growing up on a dairy farm with his 10 siblings, paying his way through college playing in a band called The Mason-Dixon Line and starting his banking career as a repo man. He became CEO in 2007 and added the chairman title in 2010.
In the hearings before Congress, the silver-haired executive took responsibility for the bank’s actions but defended its values.
“Wrongful sales practice behavior goes entirely against our values, ethics, and culture and runs counter to our business strategy of helping our customers succeed financially and deepening our relationship with those customers,” he said in remarks to the House Financial Services Committee on Sept. 29.
The stock awards taken away from Stumpf last month represented about a quarter of the $160 million in stock, deferred compensation and retirement benefits he would have received upon retirement, according to an earlier analysis by Chicago-based human-resources consultancy Overture Group.
Last month, the Wells board also announced that former retail banking head Tolstedt would give up stock awards worth $19 million. She was replaced July 31 by Charlotte-based executive Mary Mack.
Sloan was awarded $11 million in salary and stock awards for his work in 2015, the second-highest payout behind Stumpf among top executives.