The resignation of Wells Fargo CEO John Stumpf on Wednesday marked the latest step in the bank’s struggle to recover from a major sales scandal. But analysts and critics say the firestorm around the bank won’t go away anytime soon.
“This is not over,” Jaret Seiberg, an analyst with Cowen and Co., wrote in a research report Thursday, noting the bank still faces ongoing investigations. “We continue to expect that Wells Fargo will be bogged down in this controversy for the next two years.”
After rising in after-hours trading Wednesday, the bank’s shares fell 1.3 percent to $44.75 on a day when major indices also posted declines. Since the scandal erupted, the stock is down 10 percent.
Stumpf’s departure did little to appease Democratic Sen. Elizabeth Warren of Massachusetts, who in a Senate hearing last month accused Stumpf of “gutless leadership” for not resigning or returning all compensation he earned during the years unauthorized accounts were being opened.
“Mr. Stumpf should resign, return every nickel he made while this scam was going on and face an investigation by the Justice Department and SEC. So far, he’s one for three,” Warren said in a statement. “If Mr. Stumpf is leaving with all of his ill-gotten millions, that’s still not real accountability.”
Amid mounting fallout, Wells Fargo announced last month that Stumpf would forfeit all of his outstanding unvested equity awards, worth $41 million, and forgo his salary during a board investigation. But he is still expected to take home millions in his departure. According to an analysis by Chicago-based human resources consultancy Overture Group, he will still retire with about $120 million in stock, deferred compensation and retirement benefits.
Wells Fargo spokesman Mark Folk said the bank is “taking strong actions to build a better Wells Fargo,” and that Sloan “is a proven leader with deep experience and is already focused on rebuilding trust with our customers.”
In addition to the CEO’s departure Wednesday, the bank also said lead director Steve Sanger will become chairman, assuming a role previously held by Stumpf. Some industry analysts said splitting those roles is a step in the right direction for the third-largest U.S. bank by assets, but the said big challenges remain.
“I believe that his decision will in the end change the dynamic of this issue very little,” Marty Mosby, an analyst for Tennessee-based Vining Sparks, wrote in a research note. “His early departure now exposes Tim Sloan to the same scrutiny that it seems John Stumpf couldn’t overcome.”
“The issues don’t go away because Tim Sloan is a different person now leading the company,” Mosby wrote. “The angst and frustration that has been hurled at Wells Fargo is at the management team’s overall handling of this issue as a group, not John Stumpf personally.”
Meanwhile, U.S. lawmakers are continuing their calls for Wells Fargo to explain how it will make whole impacted customers, as well as 5,300 lower-level employees who were fired for opening fake accounts.
“There must be accountability to fix the culture within Wells Fargo that encouraged cheating and left senior executives either unwilling or unable to stop it for far too long,” Ohio Sen. Sherrod Brown, the Senate Banking Committee’s top Democrat, said.
Seiberg, the Cowen analyst, said he expects Sloan will have to testify before Congress next year on the bank’s sales practices that remain under scrutiny.
Sloan was chief financial officer from 2011 to 2014. In November 2015, he was promoted to chief operating officer and president, becoming boss to Carrie Tolstedt, who ran the community banking division at the center of the controversy. In an interview with the Observer on Wednesday, Sloan declined to say when he learned of the unauthorized accounts, saying he didn’t want to interfere with the board investigation.
“He needs a coherent explanation for why he was unaware of the ... troubles or what he did to end the practice if he did know about it,” Seiberg, the analyst wrote, wrote.
“He also needs to be able to explain why he did not stop the practice when he was CFO. If Sloan is unprepared when he appears, then we expect the bank will be searching for an outsider to be CEO.”
Stumpf: New CEO “battle-tested”
Following his resignation Wednesday, Wells Fargo CEO John Stumpf told the company’s 268,000 employees he “never would have imagined leaving the company I care so deeply about under these circumstances,” according to a memo obtained by the Observer.
In his memo, Stumpf also thanked employees and said it was a privilege to work with them.
“I never would have imagined leaving the company I care so deeply about under these circumstances, but it became increasingly clear to me in recent weeks that new leadership would be best positioned to guide Wells Fargo through this challenging period and to take the company into the future,” he said. “So I have made this decision to help set the path forward.”
Stumpf also praised his successor, Tim Sloan, calling him “the right person to lead Wells Fargo forward at this critical time.” Stumpf also noted Sloan is “battle-tested,” having served as chief financial officer “during the post-financial-crisis period’s toughest moments.”
Deon Roberts and Rick Rothacker