Like a rabbit in the spotlight, the board of US bank, Wells Fargo has belatedly launched an independent investigation into the firm’s retail banking sales practices, the source of the $US185 million in fines for more than 2 million fake customer accounts and credit cards and a rising tide of criticism of the bank, its management and especially long time Chairman and CEO, John Stumpf.
As the desperate Wells Fargo board has attempted to head off more attacks on it and the bank by revealing it was ‘clawing back’ some $US60 million in bonuses from Mr Stumpf and Carrie Tolstedt, the former head of the community bank who left in July without a word of criticism and a total of $US124.6 million in pay, bonuses, shares and other benefits.
The board said it plans to claw back $US41 million in compensation from Chairman and Chief Executive John Stumpf as punishment for the sales-tactics scandal.
A total of $US19 million in unvested share awards will be clawed back from Ms Tolstedt. She will not receive severance pay and has also undertaken not to exercise any outstanding warrants to buy wells Fargo shares during the investigation. She was due to leave the bank at the end of this year – she now has left the bank, according to this week’s statement.
Mr Stumpf will not be paid for the duration of the inquiry either, according to the Wells statement. That statement was issued after an emergency meeting of the board on Tuesday, US time. Also included in the announcement was news that instead of ending the sales tactics policy on january 1 next year, it wl now end next month.
The bank’s board moved to rescind pay for Mr. Stumpf and Ms Tolstedt came ahead of a hearing of the House Financial Services Committee, tonight, US time, and is a sign of the increasing nervousness in the company about the scandal which continues to grow.
Clawbacks, or their absence, became a big focus of a Senate Banking Committee hearing last week. During his appearance before that panel, Mr. Stumpf and the bank were criticised for firing 5,300 employees over five years, but taking no action against top executives.
The penalties represent one of the biggest financial sanctions ever levied against a major bank boss and mark a major change from the banking sector when, when despite scandals at large banks during and after the GFC (dud mortgages, rigging gold, interest rates and foreign exchange markets), no CEO was forced to hand back a bonus.
Wells Fargo is America’s third-largest bank by assets (it was the largest by market value until the scandal broke three weeks ago), is under pressure to show it is holding its top management accountable after government investigations revealed that some of its employees opened as many as 2 million accounts without customers’ knowledge in order to meet sales targets.
Wells Fargo agreed to pay $US185 million earlier this month to settle those regulatory charges.
A growing number of former staff and low level managers at the bank have since come forward in the last fortnight with evidence they raised the management set sales targets and pressure on low level staff, with the bank’s senior officials, and a whistleblower process the bank supposedly had in place.
Some former staff said they were sacked after putting their complaints in writing and there’s talk of numerous legal actions against Well Fargo.
The San Francisco-based bank has said it has fired 5,300 people over the matter and would eliminate sales goals in its retail banking at the start of next year. Wells Fargo has hired law firm Shearman & Sterling LLP to assist in the investigation.
Well Fargo shares closed around $US45, down from just on $US50 just before the original fine story broke three weeks ago. That’s a loss of close to $US25 billion in value.
Warren Buffett’s Berkshire Hathaway is the largest shareholder in Well Fargo with 9.4%. Buffett himself owns more than 2 million shares as well.
And in further pressure on Well Fargo, the state of California has cut business ties with the ban for the next year.
The state’s treasurer John Chiang said overnight he was sanctioning the bank and has ordered the suspension of Wells Fargo’s participation “in its most highly profitable business relationships with the State of California” as the fallout from the company’s sham account scandal deepens.
“Wells Fargo’s fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed,’ said Mr Chiang.
The sanctions, which will take effect immediately and will remain in place for the next 12 months, include: Suspension of investments by the Treasurer’s Office in all Wells Fargo securities.; Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by his office. Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the Treasurer appoints the underwriter.
Mr Chiang said he is also working with the boards at the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to pursue governance reforms at Wells Fargo. They are two of the biggest pension funds in the US.
The move is likely to heap pressure on the bank to remove chairman and CEO, John Stumpf, even after he agreed to give back $US41 million in pay awards and give up some of his salary.
Meanwhile, Federal Reserve Chair Janet Yellen said overnight the central bank her has started a review of the “disturbing” compliance failures at the biggest US banks. She was speaking during testimony to House of Representatives committee.
“We are taking a comprehensive look at the biggest banks,” Yellen said in testimony before the House Financial Services Committee, referring to a “disturbing” pattern of recent violations. She declined to respond to the most questions about Wells Fargo, including whether the Fed should consider breaking it up.
Ms Yellen said last week that the part of Well Fargo where the fake accounts and cards were created and sold (its community or retail bank) is oversee by a different regulator – the Comptroller of the Currency, and not the Fed.
