The Federal Reserve’s latest action against Wells Fargo is a new test for CEO Tim Sloan and is once again bringing pressure from the bank’s biggest critics.
In an unprecedented step, the Federal Reserve last week announced it is restricting Wells’ growth following a raft of scandals at the San Francisco-based bank. Harshly worded letters from the Fed accuse Wells’ board of failing to properly oversee the company, which the regulator said must improve its governance and controls.
The Fed’s orders turn up the heat on Sloan and Wells Fargo. The bank continues to be dogged by a scandal over unauthorized customer accounts that erupted nearly a year and a half ago. Revelations of those accounts and newer problems have rocked the third-largest U.S. bank, leading to congressional hearings, state and federal probes, and the loss of business, among other fallout.
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As recently as October, Sen. Elizabeth Warren told Sloan during a congressional hearing he should be fired for the accounts scandal, since he was chief financial officer and chief operating officer for some of the scandal’s years. After the Fed’s action Friday, the Massachusetts Democrat doubled down on the issue, saying the case for firing Sloan is “even stronger today.”
“Sloan was the CFO and COO of Wells while the bank was cheating millions of its customers, and he did nothing to stop those rampant consumer abuses despite ample warnings,” Warren said in a statement to the Observer. Wells’ board should find a new CEO “who wasn’t up to his eyeballs in the fake-accounts scandal,” she said.
Analysts, however, doubt that Sloan’s job is at greater risk.
For one, the Fed didn’t uncover new problems at Wells, they note. Also, the Fed’s constraints on Wells’ growth – the company cannot exceed the assets it had at the end of last year – will likely be lifted in about a year or maybe less, some analysts said.
“I think that this has no impact on Tim Sloan’s future at (Wells Fargo),” independent bank analyst Nancy Bush said.
The Fed’s move, announced on Janet Yellen’s last day as Fed chair, probably reflected Yellen’s concerns about her legacy around punishing Wells Fargo appropriately, Bush said: “Big hat, no cattle is my bottom line.”
In a statement, Wells Fargo said it takes the Fed order very seriously and that the company is confident in its ability to meet the requirements while continuing to serve customers.
Speaking to analysts on a conference call Friday, Sloan emphasized that Wells will still be able to accept deposits and make loans, and that the growth limitations will be manageable by temporarily limiting other activities.
But the handcuffs are frustrating some shareholders at a time when the stars are aligning for big banks: an improving economy; expectations for looser federal regulations, and ongoing increases in interest rates, which have given a boost to banks’ revenues. Over the past year, Wells shares have risen only about 3 percent, lagging much bigger gains at Bank of America (30 percent), Citigroup (27 percent) and JPMorgan Chase (25 percent).
“As a shareholder, I want them to grow,” said Charles Elson, who is also director of the Weinberg Center for Corporate Governance at the University of Delaware.
Elson said it’s a positive that Wells announced Friday it will be replacing four board members this year. It’ll be up to the board whether Sloan stays, but the Fed’s latest action doesn’t help his cause, Elson said.
The Fed’s action also increases the likelihood Wells’ scandals will be a focus at the bank’s annual shareholders meeting. The bank has yet to announce a date, but the event is usually held in the spring.
Last year, North Carolina Treasurer Dale Folwell, who has investment responsibility for the state’s pension funds, said he voted the 4.9 million Wells shares held by the retirement plans against four board members in place during the scandal. On Tuesday, Folwell told the Observer it was too soon to say how he’ll vote the shares this year, but he expressed optimism in the bank’s turnaround.
“Wells Fargo is a great corporate citizen of this state,” he said. “I feel very confident that they’re trying to … make sure this never happens again.”
California Treasurer John Chiang has stronger words. He is calling for long-serving board members Federico Peña, John Baker, Lloyd Dean and Enrique Hernandez to be the four removed. Wells Fargo has not announced the names of members who will step down.
“The four … served on the bank’s Corporate Responsibility Committee as scandal after scandal unfolded in recent years,” Chiang, a Democrat running for governor, said in a statement.
“If Peña, Baker, Dean and Hernandez are gone, I won’t have to show up … to raise holy hell about the board’s composition in April,” Chiang said.
Meanwhile, a spokesman for New York State Comptroller Thomas DiNapoli said Tuesday the state’s retirement fund will be voting against all incumbent directors at this spring’s annual shareholder meeting.