What happens over the next few days will go a long way to determining how well Wells Fargo, and the banking industry as a whole, will weather the storm now swirling around the megabank from the “widespread unlawful” practices of more than 5,000 former employees who opened more than 2 million fake accounts in order to get sales bonuses, analysts from FBR & Co. said in a note Monday.
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In a testimony to be delivered at a Senate panel, Wells Fargo WFC, +1.28% Chief Executive John Stumpf said there was “no orchestrated effort or scheme” by the bank to encourage problematic sales practices.
“A strong performance by Stumpf could mark a positive turning point for the bank”, the report says.
Also due to testify at the hearing are two regulators: Richard Cordray, director of the consumer bureau, which fined Wells $185 million, and Tom Curry, the USA comptroller of the currency, which oversees the bank. The plaintiffs referred Wells Fargo’s firing of around 5,300 employees as “cosmetic” with the bank’s intention to offer “plausible deniability”.
The company acknowledged “potentially unauthorized” bank accounts and credit card accounts were opened from 2011 through 2015, racking up $2.6 million in fees that have since been refunded to affected customers.
Inside Wells Fargo & Co., some executives called Carrie Tolstedt “the watchmaker” for her obsessive attention to detail in running the firm’s sprawling retail-banking operation. Critics have blasted Stumpf over an initial reaction that seemed to place blame with employees, rather than management.
Fortune magazine pegged Tolstedt’s total stock and options from Wells Fargo at an estimated $125 million after years of the company bragging about “cross-selling ratios”, while CNBC put it at $95 million. But customers at other banks made similar complaints.
The Wells Fargo employees who were fired during the last five years include those who failed to meet their quotas in addition to those who crossed ethical lines, said Black.
In an interview this month with CNBC’s Jim Cramer, Stumpf said he doesn’t plan to step down over the unauthorized-accounts scandal. This saved Wells Fargo from tens of billions of dollars’ worth of losses when the housing market faltered, and positioned it to acquire its larger, less prudent peer Wachovia.
True, Wells Fargo fired thousands of tellers and other front-line employees over the scandal – people earning modest hourly wages of $12 or $15 an hour – but the “bad apples” excuse won’t cut it in this case.
Robert Cordray, director of the CFPB, also is set to appear before the Senate Banking Committee as will the Treasury Department’s Office of the Comptroller of the Currency and the Los Angeles City Attorney’s Office. She is retiring from the bank this year.
Ken Sweet covers banks and consumer financial issues for The Associated Press. The bank didn’t admit or deny any wrongdoing in the settlement.
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For his part, Mayo says Wells Fargo should claw back Tolstedt’s pay and/or reduce compensation for Stumpf.
