Two top Wells Fargo executives on Thursday reiterated their commitment to fixing the bank’s sales culture, even as the company disclosed the Securities and Exchange Commission is the latest regulator to probe the creation of unauthorized customer accounts by its employees.
Echoing comments he made in Charlotte last month, CEO Tim Sloan told bank analysts that an independent consultant will examine practices in the retail bank as well as the rest of the company.
“I don’t want there to be a question about how we interact with customers at Wells Fargo,” Sloan, joined by retail bank head Mary Mack, said at a banking conference in Boston. “We’re going to put that to rest.”
Sloan said Wells Fargo hired a third-party firm to examine the bank’s practices because there are questions about whether insiders like himself and other top Wells Fargo executives can reform the company’s culture. The review will be “comprehensive,” but it will be done “relatively quickly,” he said.
On Sept. 8, Wells agreed to pay $185 million in fines to resolve allegations that its employees, racing to meet aggressive sales goals, opened millions of accounts that customers may not have authorized going back until at least 2011. That spurred customer outrage, congressional hearings, new investigations and the retirement of Sloan’s predecessor, John Stumpf.
The Observer has reported that questionable sales practices may have also extended beyond the retail bank to its Wells Fargo Advisors brokerage business. At Thursday’s conference, Sloan said he wasn’t aware of issues in other parts of the bank but that he wanted to “leave no stone unturned.”
The scandal has rocked a bank that long touted its corporate culture and its ability to sell multiple products to its customers. Now it’s facing an array of investigations from federal and state agencies, including the Securities and Exchange Commission, according to a quarterly securities filing on Thursday.
On Sept. 28, three Democratic senators – Elizabeth Warren of Massachusetts, Jeff Merkley of Oregon and and Bob Menendez of New Jersey – had called on the SEC to investigate whether Wells Fargo and senior officials violated laws “by misleading investors and firing whistleblowers while the bank oversaw the creation of millions of unauthorized, fraudulent accounts.”
In their letter, the senators said bank executives knew about the problem as early as 2013 but never disclosed the issue to investors in securities filings. In congressional hearings, Stumpf said the bank didn’t make such a disclosure because the issue was not “material” to the company’s financial results.
The senators also said the bank should be probed because Stumpf certified financial reports under the Sarbanes-Oxley law that “did not indicate any knowledge of this massive fraud.” In addition, the SEC should investigate whether the bank violated whistleblower protection laws when it fired employees who reported misconduct, the senators wrote.
As has been previously disclosed, Wells said Thursday it’s also being investigated by “federal, state and local government agencies,” including the U.S. Justice Department and state attorneys general. The bank has been responding to information requests from the various agencies investigating the company, according to the filing.
Wells spokesman Mark Folk said he could not comment on the 10-Q filing, but said the bank is “committed to restoring trust with customers and all of its key stakeholders.” He noted actions the bank has taken such as appointing new executives, eliminating sales goals in the the retail bank and refunding $2.6 million in fees incurred from potentially unauthorized accounts.
The bank doesn’t disclose the amount it has set aside to cover legal costs, but the filing said the “high end of the range of reasonably possible potential litigation losses” above its current estimate is $1.7 billion, a $700 million increase over the previous quarter. The bank also said it has had discussions with government agencies that are part of a mortgage-backed securities “working group” that has wrung big settlements out of other banks, including Charlotte-based Bank of America.
On Thursday, Warren, Menendez and Sen. Ron Wyden, D-Ore., also raised questions about whether Wells Fargo retaliated against whistleblowers by filing defamatory reports with the Financial Industry Regulatory Authority, a securities industry regulator. The senators asked the bank to respond to a series of questions by Dec. 5.
Fewer bank branches?
At the banking conference Thursday, Mack, a Charlotte-based former Wachovia executive, made her first public presentation since becoming head of the retail bank this summer. She took over for Wells Fargo veteran Carrie Tolstedt, who had announced her retirement before the $185 million in fines became public.
Mack disclosed new numbers detailing the bank’s performance since the scandal erupted, including figures that showed primary consumer checking customers were flat compared with August but up 4 percent from a year ago. As previously disclosed, interactions with bankers fell 10 percent in September from a year ago, while new checking account openings dropped 25 percent.
Sloan said the bank will report October numbers later this month, and continue to update monthly figures going forward.
Mack said one of her key initiatives is creating a new 2017 compensation plan for branch employees after the bank discontinued sales goals on Oct. 1. In the fourth quarter of this year, compensation plans are being geared toward customer service rather than sales, she said.
Asked whether the bank is considering reducing the number of branches it operates, Mack said the bank was “looking at that.” Some analysts have suggested Wells may not be able to afford as many branches if they become less productive under a new sales regime. Already, the bank has stopped a longtime practice of calling its retail locations “stores.”
Wells has stayed steady with about 6,000 branches nationwide, while competitors such as Bank of America have been shedding locations to cut costs as customers increasingly prefer mobile and online services.
“We’ll go where our customers go,” Mack said.