Wells Fargo (WFC) stock dropped almost 4% on Tuesday after the bank announced plans to abandon its sales targets where customers were sold multiple bank products. Regulators with the Consumer Financial Protection Bureau said Wells Fargo employees engaged in the chicanery because their compensation was tied to opening up new accounts.
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Despite the shocking scandal at her division, 56-year-old Tolstedt is set to walk away with an even bigger fortune when she retires at the end of the year – a $124 million payday through a mix of shares, options and restricted stock, according to calculations of company filings based on the current stock price. On Thursday, Wells Fargo was fined $185 million and admitted to firing 5,300 employees related to the phony accounts.
Bank stocks also were pressured Tuesday as traders reduced bets that the Federal Reserve will increase interest rates at next week’s meeting.
Wharton professor of legal studies and business ethics Peter Conti-Brown traces the scandal at Wells Fargo to the practice of cross-selling in the financial services industry.
SS&C Technologies Holdings has agreed to acquire Wells Fargo’s Global Fund Services business administering over $42 billion in alternative assets.
Customers began to take notice when they began receiving letters in the mail congratulating them on opening a new account.
The CFPB said last week that bank employees secretly opened the unauthorized accounts to hit sales targets and receive bonuses.
“When Carrie Tolstedt’s retirement was announced in July, Wells Fargo CEO John Stumpf called her a ‘dear friend, ‘ ‘role model, ‘ and ‘standard-bearer for our culture'”. Of that population, 5,300 employees were fired in connection to the issue.
Overnight, social media sentiment toward Wells Fargo switched from a daily average of 24 percent positive and 31 percent negative to only 3 percent positive and 74 percent negative. They all worked in Ms. Tolstedt’s community banking division, the company said. A customer who opened a checking account would be encouraged to consider a debit card or savings account.
Wells Fargo was asked whether the bank had considered the financial or reputational impact of the allegations to be material to its results and financial reporting.
The case has thrust the San Francisco-based bank into a harsh spotlight at a time when big US banks are still attempting to fix their reputations following the 2008 financial crisis.
Chief Financial Officer John Shrewsberry said Tuesday’s move is meant to make certain Wells Fargo’s customers have “the full confidence” that the bank is acting in their best interests. Wells Fargo has long cultivated a reputation for staying out of the regulatory headaches that have dogged some of its biggest competitors.
The US Senate Banking Committee has scheduled a hearing on Well Fargo for next week at which Stumpf is expected to testify.
Stumpf said clawback decisions are determined by the board of directors, and that product sales goals are not a component of compensation for any senior executives.
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“It is hard to believe a large-scale, coordinated [scheme] like this took place without knowledge of some higher ups”, Menendez said in an interview.
