Bank Watch

Wells Fargo CEO looks to restore trust in tarnished bank

Pedestrians walk past a Wells Fargo branch in downtown Los Angeles on Oct. 3, 2016.
Pedestrians walk past a Wells Fargo branch in downtown Los Angeles on Oct. 3, 2016. AFP/Getty Images

Wells Fargo’s new CEO Tim Sloan highlighted steps Friday the bank is taking to address a massive sales scandal, but also faced questions about whether the San Francisco-based company is doing enough to overhaul its culture.

On his first earnings call since being named CEO on Wednesday, Sloan said his “immediate and highest priority” is to restore trust in Wells Fargo. The bank, he said, put its employees “through the wringer” and let down investors and customers.

“We simply failed to fulfill our responsibility to all our stakeholders,” Sloan said.

In efforts to fix the business, Sloan said Wells is contracting with an outside firm to examine how unauthorized accounts have affected customers’ credit scores. It also is investigating claims of retaliation against employees who called Wells’ ethics line, he said. And the bank is developing training focused more on customer experience than sales.

In addition, Wells is helping former employees who left because of their sales performance to apply for available positions if those people remain eligible for rehiring. The bank has previously said it fired 5,300 mostly lower-level workers since 2011 over the opening of unauthorized accounts.

“We’re committed to getting it right,” Sloan said. But, he said, “it could get a little bit worse before it gets better.”

Some analysts, though, remain unsure such moves will be enough to shake up the culture at a bank fined $185 million last month to resolve allegations that employees opened millions of accounts that customers may not have authorized.

Regulators alleged those practices extended from this year back to 2011, and Wells Fargo says it is currently reviewing behavior going back to 2009. At hearings on Capitol Hill, lawmakers have expressed concerns the practices may have gone on even longer.

Speaking to CNBC, analyst Dick Bove said he doesn’t think “an insider is the right guy” to turn around the bank.

“There’s a whole lot of things that need to be done that Mr. Sloan is not going to do,” Bove said.

On Friday’s earnings call, one analyst asked Sloan, a 29-year company veteran, if Wells had given thought to bringing in an outsider, because “a lot of you guys have been with the bank for multiple, multiple years.”

Another analyst questioned why the bank chose Charlotte-based Mary Mack, previously head of the bank’s brokerage unit, to replace former community banking head Carrie Tolstedt. Mack took over the community bank in July, after Tolstedt disclosed plans to retire about two months before the $185 million in fines was announced.

“We’re looking for a culture shift, or a culture enhancement, change in the business model, and that’s a big ask,” the analyst, Betsy Graseck, said.

Sloan said he thinks the bank’s board is comfortable with Wells’ management team, adding that the financial crisis provided the bank with an opportunity eight years ago when it bought Charlotte-based Wachovia to “reset the entire team – and we selected the best folks that were available for all the roles.”

On Mack, who came to Wells from Wachovia, Sloan said she was “the best person for the job,” citing her “decades of experience in the financial services industry.” “Boy, I’m very optimistic about the leadership of Mary Mack,” he said.

Branch visits fall

Wells Fargo said Friday third-quarter profits dropped 3 percent to $5.6 billion compared with a year ago. The bank said overall revenues increased 2 percent but the gains were offset in part by higher expenses.

Net income of $1.03 a share exceeded the $1.01 average estimate of 28 analysts surveyed by Bloomberg.

Wells Fargo shares fell less than 1 percent Friday to $44.71.

The results mark the first quarterly earnings reported since the scandal erupted last month. On Wednesday, CEO John Stumpf, 63, resigned amid mounting fallout over the scandal. Wells promoted Sloan, 56, from president and chief operating officer to become Stumpf’s replacement. The bank’s board is conducting an ongoing investigation into the sales practices.

The alleged illegal activity took place in the bank’s community banking division. On Friday, Wells Fargo disclosed for the first time the hits that unit has taken since the scandal broke.

In September, customer visits with bankers in branches fell 10 percent, credit card applications fell 20 percent and consumer checking account openings fell 25 percent compared with a year earlier, according to the bank. The bank cited lower customer referrals from tellers to personal bankers, as well as decreased promotions and other marketing efforts, in the wake of the scandal.

Wells noted consumer and small-business banking deposits, primary checking account customers and active debit cards were all up from a year ago, and overall customer traffic to branches and calls into call centers were at levels typical for September.

The bank also said it continues to call customers to determine if they wanted accounts opened in their names. As of Oct. 7, for instance, Wells said it had contacted 34,000 consumer credit card customers to see if they wanted their cards. Of those, 25 percent said they either didn’t apply for cards or didn’t recall applying.

Wells Fargo has also lost big customers over the scandal.

For example, Illinois State Treasurer Michael Frerichs this month said he was suspending $30 billion in investment activity with Wells, while Chicago Treasurer Kurt Summers said he is divesting $25 million invested with the bank. The move follows a similar step by California’s treasurer.

Sloan said his goal is “to earn all that business back.” But he pointed to Wells’ roughly 90 businesses, saying “not every one of them is necessarily material in any one quarter to the impact of the company.”

More expenses ahead

Wells Fargo, the third-largest U.S. bank by assets, has its biggest employee hub in Charlotte with more than 23,000 employees.

Though the $185 million settlement represents a minor financial blow to a bank that generates billions in profits annually, Wells could face more costs from the scandal. Federal authorities are probing the bank, which could lead to fines, and revenue could be lost from fleeing customers. The bank also expects to spend “tens of millions of dollars” on added control positions.

Wells on Friday pointed to its diversified revenue sources as a positive to help it weather the crisis, but admitted its unclear how much of a hit the bank could take to its bottom line.

“It’s tough to say with specificity,” Chief Financial Office John Shrewsberry said. “This will be a headwind in community banking.”

Deon Roberts: 704-358-5248, @DeonERoberts

Other bank earnings

Other big U.S. banks reported third-quarter results Friday.

New York-based JPMorgan Chase & Co., the largest U.S. bank, said profits fell 7.6 percent from a year ago to $6.29 billion. New York-based Citigroup, the fourth-biggest U.S. bank, said it earned $3.8 billion in the quarter, down 11 percent from a year ago.

Charlotte-based Bank of America, the second-largest U.S. bank, reports Monday.

Deon Roberts

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