Top Democrat wants Wells Fargo board chair to resign over sales scandal
Rep. Maxine Waters, chair of the House Financial Services Committee, said Thursday she will call for the head of Wells Fargo’s board to resign.
And Waters, D-Calif., said she is considering referring former bank CEO Tim Sloan to the Department of Justice for prosecution for “misleading” and “inaccurate” testimony to Congress in a hearing last March.
Board chair Elizabeth “Betsy” Duke, a onetime Wachovia executive, and Sloan feature prominently in a Congressional report released late Wednesday by Waters’ committee. The 113-page report reveals many unflattering details revealed about the bank, its sales scandal and its regulators’ reaction to it.
An official at the Consumer Financial Protection Bureau pledged that Wells Fargo would be able to resolve outstanding issues quietly, the report said. As recently as December, the report found that regulators said the bank is lagging in fixing its issues, meaning that the unprecedented regulatory restrictions on the bank could potentially remain for some time.
The findings in the report led Waters to say on a Thursday call with reporters that she will call for the resignation of Duke and also James Quigley, another board member, for their conduct, when the bank’s leaders testify in front of Waters’ committee next week.
“We don’t have any indication that there have been any serious changes,” under new CEO Charlie Scharf, Waters said, citing a conversation she had with him. “I asked him what was his plan, what was his vision. He basically said he wasn’t ready to commit to a plan at this time.”
A spokesman for Wells Fargo said Wednesday the bank is reviewing the report. On Thursday, the bank declined to comment on Waters’ statements.
Two weeks ago, the bank agreed to pay $3 billion to settle two federal probes into the sales scandal.
“The conclusions of the House Financial Service Committee staff report relating to Tim Sloan are completely unfounded,” Josh Cohen, a lawyer for Sloan, said in a statement. “An impartial review of Wells Fargo’s actions under Mr. Sloan’s leadership demonstrates a concerted effort to comply with the consent orders and directives of regulators. Mr. Sloan’s testimony to the Committee about this effort was truthful and in good faith.”
Congressional Republicans on the financial services panel, led by ranking member Rep. Patrick McHenry, R—N.C., also released their own report on Wells Fargo on Thursday.
They found many of the same issues with the bank — poor oversight of management and lack of focus on fixing issues. It’s an indication the bank is poised to receive the same bipartisan lashing it has received the last few times its faced Congressional scrutiny.
Sloan’s statement
At the March 2019 hearing, Sloan said the bank was “in compliance” with a 2018 consent order from its primary federal regulator, the Office of the Comptroller of the Currency, relating to a product it offered. That wasn’t true, the Democrats’ report said, citing the regulator.
The day after the hearing, officials at the OCC passed around a transcript of Sloan’s testimony, according to the report, and concluded that the bank was not in full compliance with one of two portions of its remediation plan. Sloan’s testimony, the OCC found, was not accurate, according to communications cited in the report.
Under fire from regulators and elected officials, Sloan resigned later that month. Because he was under oath at the hearing, Waters said that was why she is considering referring him for prosecution.
From 2002 to late 2016, hundreds of thousands of Wells Fargo employees took part in myriad sham sales practices, opening millions of fake accounts in customers names, among other misconduct, to meet unreasonably high sales goals, regulators have found.
In its recent multibillion-dollar settlement with federal officials, Wells Fargo said the bank’s management knew what was going on, turned a blind eye to the practices and minimized the issue to the company’s board.
Wells Fargo is a top employer in Charlotte with about 27,000 workers in the area, a legacy of the bank’s 2008 purchase of Wachovia. The bank is headquartered in San Francisco.
Duke, one of the two directors that Waters is calling on to resign, has been a board member since 2015 and took on the role of board chair in January 2018. The Democrats’ report said she “appeared reluctant to engage in oversight” of the bank’s efforts to comply with its regulators.
In one 2017 meeting with the consumer bureau, Duke, then vice-chair, questioned why the bureau was including her on letters asking Wells Fargo to take certain actions, according to the committee report. “Why are you sending it to me, the board, rather than the department manager?” she says in CFPB notes cited in the report.
The board “abdicated its responsibility to oversee the Bank’s compliance” the report found, with particular emphasis on Duke and Quigley. The board didn’t hold executives accountable, even when they didn’t meet regulators’ expectations, the report found.
The Republican report also finds issues in the bank’s board, and with Duke, using some of the specifics that the Democrats used, including the instance where Duke requests regulators to not contact her directly.
Regulators attended a July 2018 board meeting, where an OCC official said it became obvious Duke did not understand how behind the bank was in complying with regulators, according to the report. The OCC grew concerned with Duke’s leadership, the report says.
Wells Fargo’s board “continued to support the company’s management despite overwhelming evidence that” its response to the regulators was inadequate, the Republican report concluded.
A spokeswoman for the ranking member didn’t immediately respond to a request for comment on whether the congressman would join Waters in calling for resignations at the bank.
Hearings ahead
The report sets the stage for two pivotal days for Scharf and Duke.
On consecutive days starting next Tuesday, they will testify in front of the financial services panel. The pair likely will be asked to explain how they will fix all the things that went wrong at Wells Fargo.
Waters’ committee went through thousands of documents, received briefings from four of the bank’s regulators and interviewed current and former bank executives. This gave the committee an inside look at how Wells Fargo tried to grapple with the sales scandal and address regulators concerns.
The Democrats’ report finds problems in nearly every corner, including in the bank’s management and board, as well as with the regulators tasked to prevent the misconduct that Wells Fargo did.
One key finding in the report concerned what happened when the consumer bureau and Wells Fargo were discussing actions last year that the agency would take against the bank.
Wells Fargo’s interim CEO, C. Allen Parker, said in a meeting with the agency that a former top bureau official, Eric Blankenstein, had told Parker that further issues regarding the bank and CFPB would be resolved privately, according to bureau notes cited in the report.
While the bureau told Wells Fargo that the impression Blankenstein had given the bank was wrong, the report found that “separate lines of communications between political appointees and the Bank could potentially undermine the authority of career officials in their oversight of the institution.”
Blankenstein had left the bureau amid controversy by the time the meeting took place. The Department of Housing and Urban Development, Blankenstein’s current employer, did not respond to a request for comment.
Despite having years to fix the banks compliance issues, the bank is still far from satisfying many of the regulators’ requirements, the report found.
According to a report from the OCC dated Dec. 19, and cited in the Congressional document, Wells Fargo’s “progress continues to lag expectations on” resolving existing enforcement actions against the bank.
The bank estimates that won’t be fully compliant with a 2016 consent order from the OCC regarding its sales practices until Sept. 30, 2021, according to the report, and has not provided regulators with an estimated date for when it will be compliant with a 2018 consent order.
Republicans’ report
The Republicans’ report creates a picture of a bank that was fully incapable of handling the issues regulators were asking them to handle. The OCC has rejected every remediation plan submitted by Wells Fargo, multiple times, the report says.
The bank habitually missed deadlines to submit plans to regulators, the report found.
Wells would repeatedly ask for extensions, the report says, frequently at the last minute, and when it would finally send in plans telling regulators how it was going to fix things, the submissions seemed “thrown together”.
Amanda Norton, Wells Fargo’s chief risk officer, said in testimony cited in the report that when she started at the bank in 2018, Wells had an “immature” risk and compliance program.
While other large banks developed complex compliance structures after the financial crisis, Wells Fargo, generally unscathed after 2008 compared to the rest of Wall Street, did not, the GOP report stated. This left it open to make big mistakes, according to Norton.
“If it hadn’t been sales issues, it would have been something that would have popped,” Norton said, in testimony cited in the report.
The bank seemed more focused on making it seem like it was making progress on handling the scandal than actually making the changes that regulators were asking the bank to make, the Republican report found.
“Tim Sloan made a series of incomplete and overly optimistic public statements about the bank’s progress,” the report found. When he said in 2018 that he expected the Federal Reserve to lift its cap on the bank’s growth in the first part of the next year, “there was no basis for such an optimistic prediction,” the report said.
The Fed had just rejected Wells Fargo’s initial plan for changes to its governance and risk management program. The growth cap remains in place, more than a year later.
There are signs of progress, the Republicans found.
The bank is now meeting deadlines, and Scharf has put in a place new leaders, hired from outside the bank, that the report views with cautious optimism. Still, it says that Wells “has a great deal of work to do.”
Restrictions remain
As long as the regulatory orders remain, the bank will continue to face heavy restrictions.
As a part of its enhanced oversight of the bank, the OCC can remove Wells Fargo executives and board members, among other extraordinary powers.
Knowledge of this capability was an issue with bank executives, according to the Democrats’ report, and they unsuccessfully tried to get a mention of it scrubbed from a 2018 OCC press release.
The Federal Reserve, another Wells regulator, has banned the bank from growing beyond its 2017 size, about $2 trillion in assets, an extreme move that signaled regulators’ intense focus on the bank.
In response to the Congressional report, Comptroller of the Currency Joseph Otting offered a measured statement of support in Scharf, saying, “While the bank still has much work ahead, we are encouraged by the leadership and focus on regulatory matters by the bank’s new Chief Executive Officer.”
As long as the bank continues to lag on resolving its regulatory issues, these restrictions, unprecedented for a large bank in the modern era, will remain.
This story was originally published March 5, 2020 at 5:45 AM.