The allegations have been a black eye for San Francisco-based Wells Fargo, the biggest US home lender and a marquee investment for billionaire Warren Buffett, whose Berkshire Hathaway Inc.is the bank’s largest shareholder.
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If Wells Fargo were focused on bank charges and interest rates rather than political hot button issues, perhaps it wouldn’t have had to fire thousands of employees for ripping off customers and be liable for millions of dollars in fines.
Wells Fargo pledged on Tuesday (Sep 13) to eliminate product sales goals in retail banking as it faced mounting criticism over its bogus accounts scandal, including from Treasury Secretary Jacob Lew. Wells Fargo declined to comment on the possibility of a clawback.
The fines came from a combination of California and federal regulators who alleged that the practice was being used to meet aggressive sales goals.
It marked a significant shift by Wells Fargo, which prides itself on “cross selling” customers as many “products” – like checking accounts and debit cards – as possible. “Fortune magazine has now dubbed Tolstedt, who exits with $125 million in the usual stock option/restricted share haul, the company’s “‘sandbagger’-in-chief”.
Wells Fargo is also standing by its July announcement that Tolstedt is leaving the bank at the end of the year to “retire” after a “long and successful career”. The phantom accounts resulted in some customers being hit with fees for insufficient funds. They all worked in Tolstedt’s community banking division, the company said.
As for the firings, a Wells Fargo spokesperson said, “The actions we have taken with respect to team members and managers reflect our commitment to monitoring and addressing any inappropriate sales conduct”. The move marks a major switch in practice by the bank, which is known in the industry for its ability to sell multiple products to the same customer.
More than 5,000 Wells employees secretly set up more than 2 million deposit and credit card accounts that weren’t authorized by consumers, according to the bank’s own analysis.
Though the scandal does not involve huge amounts of money, it has tarnished the image of Wells Fargo after it emerged from the subprime housing bust comparatively unscathed.
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.
He added that Wells Fargo’s headaches are also “quickly becoming a political problem” for big banks in general, providing critics “more ammunition to argue that mega banks are unmanageable”.
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“There are two possibilities: Customer abuse was part of business model, in which case lots of high ranking people need to go to prison”, said Bart Naylor, a financial policy advocate for Public Citizen.
