A year after a major sales scandal erupted, Wells Fargo is still facing questions from elected officials about its board leadership and calls for further congressional hearings.
Last September, the bank agreed to a settlement over allegations of a “widespread illegal practice” involving unauthorized customer accounts being secretly opened. That led to the abrupt retirement of its CEO, lawsuits and state and federal probes.
Wells Fargo has said it’s made progress since the scandal, including overhauling how it compensates personal bankers and other branch staff. But such changes aren’t enough for some critics amid a string of fresh issues that have emerged in recent months at the San Francisco-based bank. Those findings include Wells’ disclosure last week of up to 1.4 million more potentially unauthorized accounts, a nearly 70 percent increase from previous estimates.
Some state and local officials with oversight of pension fund investments in Wells Fargo are questioning whether the bank needs more changes to its leadership.
In a statement to the Observer, California State Treasurer John Chiang, a past critic of Wells’ sales scandal, called for the removal of longtime board member Enrique Hernandez Jr.
Chiang, a Democrat running for California governor, pointed to Hernandez’s position on the board’s Corporate Responsibility Committee, saying in the statement that Hernandez was charged with protecting Wells’ reputation and the trust between the bank and customers.
Another frequent critic of Wells’ scandal, New York City Comptroller Scott Stringer, said in a statement that the “pattern of deeply disturbing revelations” at the bank raised questions about whether chief executive Tim Sloan, “a homegrown CEO,” can fix the bank. Stringer, a Democrat, is seeking re-election.
Meanwhile, in a letter last month, Sen. Elizabeth Warren of Massachusetts and other Senate Banking Committee Democrats urged committee Chairman Mike Crapo, an Idaho Republican, to hold a Wells hearing this month. Warren has also called for more board changes.
In the House, California’s Maxine Waters and two other Democrats sent a letter last month to House Financial Services Committee Chair Jeb Hensarling asking for a separate hearing into Wells. The letter described “seemingly never-ending developments” at the bank, “that clearly warrant committee scrutiny.”
Wells Fargo says it’s taken many actions in response to the scandal, including terminating managers in its retail bank and elevating board member Betsy Duke to replace Sanger. The bank also says it’s being transparent by publicly disclosing findings as it continues to examine practices across the company.
In a statement, spokesman Mark Folk noted other steps have included “fundamental” changes to Wells’ business model, organizational structure and compensation programs, “to ensure our focus is on our customers and their financial needs.”
“We are making strong progress in our work to rebuild trust and build a better Wells Fargo for the future,” Folk said.
As for the prospect of more hearings in Congress, at least one analyst has said the increase in unauthorized accounts raises the probability they’ll happen this fall. Jaret Seiberg, an analyst with Cowen and Co., said in a report last month that the increase makes it “very difficult” for Hensarling or Crapo to reject the demands from congressional Democrats.
Michael Useem, professor of management at the University of Pennsylvania’s Wharton School, said Wells’ stock performance will be key to whether Sloan keeps his job. Institutional investors could agitate for change if they become upset by the stock’s performance, he said.
“If they begin to clamor behind closed doors ... I think the pressure will be on to clean house and bring on a new management team,” Useem said.
“What will lead a board of directors to really rethink the person they installed ... in the corner office, what will focus their minds, is if the stock price begins to sag or continues to sag, and then the voice (of) the big institutional holders gets directly expressed.”