Wells Fargo CEO John Stumpf faced withering fire from the Senate Banking Committee on Tuesday, with members calling on him to resign and for the bank to recoup pay from top executives over a burgeoning unauthorized-accounts scandal.
Sen. Elizabeth Warren gave Stumpf the harshest dressing-down, saying he had showed “gutless leadership” by placing blame on lower-level employees while top executives kept their jobs and high-priced compensation packages.
“You should resign,” Warren, the Massachusetts Democrat, told Stumpf during the hearing. “You should give back the money that you took while this scam was going. And you should be criminally investigated by the Department of Justice and the Securities and Exchange Commission.”
Stumpf, CEO since 2007, said he was “deeply sorry” for the San Francisco-based bank’s conduct. But he repeatedly said any decision to “claw back” compensation from executives would be up to the bank’s board.
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He gave no indication that he plans to leave the bank and said he was making a “personal commitment to rebuilding our customers’ and investors’ trust.”
Following the Capitol Hill appearance, analysts largely panned Stumpf’s performance, saying it did little to tamp down the fury over allegations that the bank’s employees opened more than 2 million unauthorized accounts in order to meet aggressive sales goals.
Wells is likely to face further government scrutiny, and analysts said it’s possible the bank may dismiss some executives. The bank’s actions have also ratcheted up criticism in Washington that big banks are too big to manage, already a hot-button issue during this year’s presidential election.
The Senate committee summoned Stumpf to testify after Wells Fargo agreed this month to pay $185 million in fines to settle claims over the opening of the unauthorized checking accounts and credit cards.
At the hearing, the bank revealed new details about when executives learned about the misconduct and the steps they’re taking to address the problem.
Stumpf, 63, testified that the existence of the fraudulent accounts was not brought to his attention until 2013 and didn’t reach the bank’s board until late 2013 or 2014. That comment raised eyebrows from lawmakers who wanted to know why the bank – which fired 5,300 people over the behavior starting in 2011 – did not take more action to stop the activity.
“What we’ve been learning is so deeply disturbing at so many levels,” Sen. Patrick Toomey, a Pennsylvania Republican, told Stumpf.
Stumpf said the fired employees were bankers, front-line and mid-level managers, and an area president. No senior executives were terminated, although the head of the community banking unit where the accounts were opened, Carrie Tolstedt, announced her retirement in July.
This summer, Wells president Tim Sloan told Tolstedt the bank wanted to go in a “different direction,” and she decided to retire, Stumpf said. The bank, which was in settlement talks with regulators at that time, wanted to put “more focus on the issue,” he added.
On Tuesday, Wells also announced three new steps it’s taking to prevent illegal sales practices and uncover such activity. The bank said it’s expanding its review of accounts to 2009 and 2010. In addition, it plans to contact all of its deposit customers across the country and invite them to review their accounts with a banker. The bank has also begun contacting hundreds of thousands of customers with open credit cards to confirm if they want the card.
Since reaching the settlement, Wells Fargo has announced it will eliminate sales goals for its retail bankers. But Stumpf said the bank recognizes that “we should have done more sooner” to stop unethical behavior.
“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust,” he said in his prepared remarks.
‘Trust was broken’
Stumpf on Tuesday joined a long list of bank CEOs who have been called to testify in Washington about alleged wrongdoing since the financial crisis. He arrived early and took his seat with a bandaged right hand, which the bank said he hurt playing with his grandchildren.
During nearly three hours of testimony, Republicans and Democrats took turns lambasting Stumpf and his bank, previously seen by many as a gold standard in the industry that had emerged virtually unscathed from the recession.
“I’ve often said that banking is based on trust, and that trust was broken at Wells Fargo,” Committee Chairman Richard Shelby, an Alabama Republican, said in his opening statement.
Warren, a longtime industry critic, contrasted Wells’ treatment of employees who were under pressure to meet sales goals with the lack of punishment for top leaders.
“If one of your tellers took a handful of $20 bills out of the cash drawer, they’d probably be looking at criminal charges for theft,” she said. “They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket.”
Asked by Warren whether he had returned “one nickel” of pay, Stumpf said the bank’s board would take care of the matter. Warren said she took his answer as a “No.”
Ohio Sen. Sherrod Brown, the top Democrat on the committee, asked Stumpf if the CEO would publicly recommend that compensation for Tolstedt, the former community bank head, be recouped.
Tolstedt, who is based in San Francisco, was one of the Wells Fargo’s highest-paid executives in 2015, making $9.1 million in salary, bonus and stock awards. She also holds company stock and stock options worth a total of about $96 million, according to a letter from the bank released by Warren’s office.
Stumpf, who made $19.3 million in total compensation in 2015, said that any clawback decision was for the bank’s board. In a statement Tuesday, the bank said any board actions taken with named executive officers “will be appropriately disclosed.” No timeline was provided.
More trouble ahead
Stumpf’s performance did little to help the bank’s recovery from the public outcry over the bogus accounts, analysts said after the hearing. On numerous occasions, Stumpf told his inquisitors that he wasn’t an expert on a certain subject, would need to provide an answer at a later date or deferred to the bank’s board, of which he is the chairman.
He said he didn’t deem the issue a “massive fraud” and pointed out multiple times that the misdeeds were carried out by just 1 percent of the community bank’s employees.
Stumpf “attempted to deflect just about every tough question on clawing back compensation, paying executive bonuses and retaining managers by saying he did not want to comment because it might influence how the board decides these issues,” Jaret Seiberg, an analyst with Cowen and Co., said in a report. “This is a losing argument. We believe the responses just further inflamed the populist dislike of the mega banks.”
Dick Bove, analyst with Rafferty Capital Markets, said it was clear that some top executives at the bank will be fired, with officials in human resources, underwriting and information technology at risk. The SEC may investigate the company for failing to disclose its practices to investors, and private class-action lawsuits are likely, he added.
Stumpf will “probably survive” as CEO, but it’s likely he will have to give up some of his compensation, said Gary Townsend, a longtime bank analyst and CEO of GBT Capital Management, a family investment vehicle that holds Wells Fargo warrants.
“There’s probably a pound of flesh that comes out,” Townsend said.
In a brief interview with McClatchy’s Washington bureau, Brown, the Ohio Democrat, said Stumpf’s answers probably “hurt his case” with the committee.
“I think he really looked like he didn’t have the power of a CEO, or he was evading questions,” he said. “Take your pick.”
Stumpf will face more questions from lawmakers later this month from the House Financial Services Committee. The panel has not announced a date for that hearing.
Despite the poor reviews for Stumpf, the bank’s shares rose 1.2 percent to $45.56 on Tuesday. The stock is still down more than 6 percent since the settlement with regulators was announced this month.
Wells is based in San Francisco but has its biggest employee base in Charlotte since buying Wachovia in 2008. The new head of the community banking unit, Mary Mack, is based here.
Kevin Hall in the McClatchy Washington Bureau contributed.