Wells Fargo turned heads this week when it abruptly announced the retirement of CEO Tim Sloan in the face of ongoing scrutiny of the fourth-largest bank’s many problems.
The bank’s board on Thursday also said it will look outside the company for its next chief executive after Sloan, an insider, struggled for more than two years to move Wells past a series of high-profile scandals.
But it’s not clear whether naming an outsider as CEO will be enough to quiet the bank’s biggest critics or improve its standing with regulators, who have expressed dissatisfaction with Wells since a 2016 scandal over unauthorized customer accounts.
No sooner had the bank announced Sloan’s departure than consumer advocacy groups and U.S. lawmakers pounced, saying more measures must be taken to fix the San Francisco-based bank. In the Charlotte region, Wells employs about 25,700, making the area its biggest employment hub.
“Wells Fargo’s mismanagement is about more than one CEO,” Sherrod Brown, the ranking Democrat on the Senate Banking Committee, tweeted on Thursday. “This bank needs a complete culture shift.”
U.S. Rep. Katie Porter, D-Calif., said in a press release that mismanagement at Wells “runs deeper than Mr. Sloan. “The bank has a lot of work to do to fix its problems, and Congress and our bank watchdogs need to continue pressing for change.”
Wells Fargo declined to comment on the criticism, referring a reporter to a news release the bank issued Thursday.
In the release, Wells Fargo Chair Betsy Duke said the board concluded that hiring an outsider is “the most effective way to complete the transformation at Wells Fargo.”
And Sloan on Thursday said that the focus on him had become a distraction that was impacting the ability “to successfully move Wells Fargo forward.”
Bart Naylor, financial policy advocate for Washington, D.C.-based consumer advocacy group Public Citizen, said he still has concerns about the bank’s size in the wake of its scandals.
“Sloan’s departure doesn’t end the fact that Wells Fargo is too big to manage, too big to fail,” he said.
Calls for board changes
Wells has been under intense scrutiny since the 2016 revelations that employees opened millions of bank and credit card accounts without customer permission in order to meet high-pressure sales goals.
For its part, the Committee for Better Banks, a New York-based group pushing to unionize Wells Fargo employees, said more must be done to turn Wells Fargo around and eliminate sales pressure that persists after the 2016 scandal.
“The departure of one man won’t fix the bank’s broken and morally bankrupt culture,” the group said in a statement. “Wells Fargo employees still attest to the same toxic mix of high-pressure metrics and an atmosphere of fear and intimidation that fueled the fraudulent account scandal.”
Since the 2016 scandal, Wells has disclosed problems in other areas of the company, including foreign exchange, wealth management, auto lending and add-on products such as identity theft protection.
Last year, the Federal Reserve, responding to “recent and widespread consumer abuses” at Wells, imposed a cap on its growth. That restriction remains in place, a concern for investors.
When a bank has problems as serious and long-running as Wells Fargo’s, it must take three steps, said Ken Thomas, a Miami-based banking consultant. The first is to change senior management, which the bank is effectively doing by replacing Sloan, he said.
But Wells also still needs to replace board members who have been in place since before the 2016 scandal was revealed, Thomas said. Those members failed to provide adequate oversight of the bank during the years of the scandal, he said.
The bank has shaken up some of its board membership since the accounts scandal broke. Of the board’s 12 directors, though, five have served since before the 2016 scandal erupted.
The third step, reserved for the most serious situations, is to change the bank’s name and rebrand itself so that the public realizes it’s a totally new bank, Thomas said. Wells Fargo also needs to take that step, he said.
“So, being generous to the bank, they are about two-thirds of the way there,” he said.
‘Not an easy task’
Sloan is the second CEO to depart Wells Fargo in the past two and a half years.
Sloan’s predecessor, John Stumpf, retired a month after the 2016 scandal was revealed. The bank elevated Sloan, then president and chief operating officer, to replace Stumpf, who presided over the bank during the years the accounts scandal went on.
Almost immediately after his appointment, Sloan, 58, faced questions about whether someone with a decades-long career at Wells Fargo was the right person to fix its problems. Sen. Elizabeth Warren, a Massachusetts Democrat and presidential candidate, has been among the critics who repeatedly called for Sloan’s resignation.
Wells Fargo has not given a timeline for hiring Sloan’s permanent replacement. In the interim, Allen Parker, who most recently served as the bank’s general counsel, will fill the role during the search. The bank said it was immediately starting the search process.
It’s not unheard of for a troubled company to hire a CEO from outside the firm.
In 2012, for example, Yahoo announced Google executive Marissa Mayer as its new chief executive of the beleaguered company.
Bank of America, on the other hand, hired insider Brian Moynihan to take over the Charlotte-based company after Ken Lewis announced plans in 2009 to step down as he came under fire for the bank’s Merrill Lynch purchase.
Even a CEO with Washington, D.C., experience won’t immediately fix Wells Fargo’s troubles with lawmakers, Jaret Seiberg, a Washington bank analyst with Cowen and Company, wrote in a report on Friday.
The challenge for Wells’ next CEO will be to change the perception “from being a bank that has to be forced to take the ‘right’ move to a bank that gets ahead of the pressure by taking the ‘right’ step before Washington demands it,” Seiberg wrote.
“That is not an easy task, which is why the challenge for the new CEO is so great.”
Stumpf received no severance as he retired, and he agreed to forfeit all of his unvested stock awards, worth about $41 million, the bank has said.
After Stumpf left the bank, it clawed back an additional approximately $28 million in stock from him.
Wells Fargo has not announced any similar action against Sloan, who received $18.4 million in total compensation for his work last year, an increase of more than 5 percent from the year before.
Sloan’s payouts for retiring from the company include more than $16.6 million in restricted stock rights and more than $35.3 million in performance shares, according to the bank’s proxy that was filed this month.
Sloan also has an accumulated pension of about $1.3 million. His retirement payouts also include more than $13 million in deferred compensation, which includes 401(k) funds.
All told, Sloan is scheduled to get more than $66 million from the various retirement payouts.
‘Hard to do’
Many also are wondering what experience Wells Fargo will seek in its next CEO — and who could possibly be interested in the tough job of fixing a major bank.
Speaking to industry analysts during a conference call on Thursday, Duke, the board chair, said the board will likely hire someone whose qualifications match “the business of Wells Fargo, where we are in our transformation and just the leadership needs that we have.”
Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said the bank will need someone who can “calm the waters, change the culture and yet provide dynamic growth.
“That’s going to be hard to do.”
Bank analyst Nancy Bush told the Observer she was unsure whether Sloan’s departure will be enough to take pressure off the bank.
“I think the lessening of pressure will depend upon the identity of the new CEO,” she said. “They will have a select someone with a strong operational background and massive credibility.”