Wells Fargo CEO: We should have done more sooner
Wells Fargo CEO John Stumpf faced another round of tough questioning on Capitol Hill Thursday, with some lawmakers asking why he still has a job or why he shouldn’t go to jail over a fake-accounts scandal.
“When are you going to resign?” Rep. Roger Williams, R-Texas, asked in the fourth hour of the hearing before the House Financial Services Committee. “I personally don’t see how you survive,” added Rep. Denny Heck, D-Wash.
Other lawmakers suggested Wells Fargo and other big banks were too big to manage and should be broken up.
Stumpf responded that he serves at the pleasure of the Wells Fargo board, but said he’s putting “all of my energy” into fixing the bank’s problems. He said he disagreed that the bank was too big to manage, but that it needs to work on operational and compliance issues.
On Sept. 8, Wells agreed to pay $185 million in fines over allegations of “widespread illegal” sales practices that dated to at least 2011. Regulators said bank employees, racing to meet aggressive sales goals, opened 2 million accounts that may not have been authorized by customers.
In a somber opening statement, Stumpf told the committee that he is “deeply sorry” for the bank’s actions, echoing his remarks last week to the Senate Banking Committee. He also said the bank will eliminate product sales goals for retail bankers starting Saturday, sooner than a previous plan of Jan. 1.
On Tuesday, Wells Fargo’s board announced that Stumpf, 63, will forfeit all of his outstanding unvested equity awards, worth $41 million, and forgo his salary during a board investigation. But that move hasn’t silenced the bank’s critics, with some saying he should lose his CEO post or his chairman’s title.
“I respect and accept the board’s decisions,” Stumpf said in his opening remarks. He wore a black brace on his right hand, which the bank has said he injured playing with his grandchildren.
Under questioning, he said he recommended over the weekend to the board’s lead director, Stephen Sanger, that he should forfeit stock awards. Stumpf said he “thought it was a good way to show a start to my level of commitment,” adding the board can do more if it wants.
The board also said Tuesday that former retail banking executive Carrie Tolstedt will forfeit $19 million of her stock awards. Both she and Stumpf are also giving up any bonuses for 2016. The bank said Tuesday that Tolstedt has left the company, sooner than her previously planned retirement at the end of this year.
McHenry cites Wachovia past
San Francisco-based Wells Fargo expanded into North Carolina with its 2008 purchase of Wachovia and now has its biggest employee hub in Charlotte, with more than 23,000 workers.
At the hearing, Rep. Patrick McHenry, R-N.C., said Wells Fargo pitched its culture as similar to that of Wachovia, where the late former CEO John Medlin Jr. believed bankers should be “civil servants.” But McHenry said the experience of his constituents hasn’t lived up to that pitch.
“You clearly have failed,” McHenry said, adding: “How can you get through this?”
Another Charlotte-area representative, Republican Robert Pittenger, commended Wells Fargo for its “corporate citizenship” in the region and noted the bank’s “major presence” here.
“We love Charlotte,” Stumpf said.
Pittenger also said he cherishes the annual Wells Fargo Championship, an annual golf tournament the bank sponsors at Quail Hollow Club, But the lawmaker also told Stumpf it was “such a sad day.”
“You’ve heard a lot of outrage,” Pittenger said. “A lot of righteous indignation, because we haven’t seen what we’ve all expected.”
Indian Land Republican Mick Mulvaney told Stumpf that Mulvaney’s father taught him a person can learn a lot about an organization by looking at the leader. “The place that you ran,” Mulvaney said, “y’all were rotten."
N.C. impact unknown
During the hearing, some committee members asked Stumpf how many accounts were potentially affected in their state. In one example, Stumpf told Williams of Texas that more than 149,000 accounts could not be ruled out as problematic. A Wells Fargo spokeswoman said she did not have figures for North Carolina and South Carolina immediately available.
At one point in the hearing, Rep. Carolyn Maloney, D-N.Y., questioned Stumpf about $13 million in stock he sold through a family trust in October 2013, the year the CEO said he became aware of the accounts problem.
“Did you dump the stock after you found out about the fraudulent accounts?” Maloney asked. “Because it seems that the timing is very, very suspicious, and it raises serious questions.”
Stumpf acknowledged he sold the shares but said the move was done “with no view about anything that was going on with sales practices.”
Asked by another lawmaker Thursday whether the bank should have a separate CEO and chairman, Stumpf said he believed the company had the right structure but that he serves at the pleasure of the board.
The bank has said it fired 5,300 employees over the matter, but lawmakers have criticized the bank for terminating lower-level employees while leaving top executives in place. Stumpf said about 10 percent of the fired workers were managers.
The Observer has previously reported that Stumpf serves on the boards of Chevron and retailer Target Corp., the only CEO among the six biggest U.S. banks to sit on boards of other public companies. The top Democrat on the committee, Maxine Waters of California, told Stumpf on Thursday that his board involvement “may be the reason” he wasn’t aware of problems at the bank sooner.
Lawmakers also used Thursday’s hearing to chastise bank examiners for missing the problems at Wells Fargo and to raise questions about the conduct at other big banks.
“The financial regulators,” said Rep. Scott Garrett, R-N.J, were “asleep at the wheel,” noting that the scandal was uncovered by the Los Angeles Times.
Rep. Brad Sherman, D-Calif., said he wanted to know about sales goals at other banks, telling Stumpf that he shouldn’t be “alone in this joyous experience.” He also said the scandal is a sign that banks are too big to manage.
“It’s time to break them up,” he said.
Waters also said she would push to have Wells Fargo broken up: “It’s too big to manage.”
In another sharp exchange, Rep. Mike Capuano, D-Mass., said Stumpf and other executives committed fraud and identity theft in the scandal.
“Why shouldn’t you be in jail?” Capuano asked.
Stumpf did pass one important test during the hearing – he flew a commercial airline to the session, rather than a private jet. In 2008, automaker CEOs raised the public’s ire when they took private planes to a congressional hearing to ask for bailouts.
“Virgin America,” Stumpf responded when asked what airline he flew to Thursday’s hearing.
Wells Fargo shares dropped more than 2 percent Thursday, as other major indices also fell.