Wells Fargo, Warren Buffett’s favourite bank has shown all banks the way to investigate themselves, sort of.
It is a message for Australian banks wondering why ordinary people do not believe them when they say they have fully investigated atrocities against customers/clients – whether it is over charging, denying insurance benefits, poor advice, or just outright stupidity by staff who think they can get away with it.
Early Tuesday morning our time, Well Fargo, America’s second largest bank, released as long awaited report on the fake customer accounts sales scam that burst into public view last September. It is not good for the chairman and some board members, past and present. In fact it is quite damning.
The 110 page report was conducted by board directors, assisted by external counsel – in other words, it wasn’t wholly internal or wholly independent and it has shown up an internal report that had basically absolved the board, including chair, Stephen Sanger.
The report reveals that the Wells Fargo board at the time was asleep and lazy and didn’t heed warnings from down the line staff and ignored reports of the fake accounts scam well before they reached the desks of regulators in California and Washington.
The sales target scam had been creating problems for at least 15 years, according to te report, and this was ignored by the board and management.
The scandal has cost the CEO, John Stumpf (and Warren Buffett’s favourite banker) his job and millions of dollars in benefits, other senior executives lost retirement benefits and options, and others were censured. Three new board members have been brought in to replace ‘retirements’.
More than 5,000 staff lost their jobs over the scandal when they were only doing what their bosses ordered them to do in the first place.
In the report Well Fargo’s board said they would claw back an extra $US75 million in bonus payouts on top of millions already denied senior executives involved in the scandal. That will take the amount clawed back from former directors and executives to $US180 million.
The report placed much of the blame at the door of Wells’ former managers, including Mr Stumpf, finding they set branches “untenable” targets and ignored problems that appeared at least 15 years ago.
The report says Mr Stumpf was aware of a Wells branch in the American state of Colorado in 2002 where internal investigators found “almost an entire branch” had engaged in a form of “gaming”, with some employees issuing debit cards to customers without their consent.
The report says these problems became widespread at Wells as thousands of employees in branches across the country went on to sign up customers fraudulently for cards and accounts.
But executives treated these staffers as rogues, blamed them and treated the problem as not being systemic throughout the bank.
Wells has already paid customers affected by these fake accounts $US110 million and the Financial Times say this could see more money paid because the settlement only covers the period from 2009. Now we have the scandal appearing back in 2002, and probably earlier.
The FT points out that the latest report adds to pressure on Wells chair, Stephen Sanger who commissioned an internal report which failed to find the sorts of things the new inquiry did.
"The 110-page board report, which followed a six-month probe by directors assisted by independent counsel Shearman & Sterling, reserved its fiercest criticism for former managers at Wells’ community banking division, including then-chief Carrie Tolstedt. Executives there failed to pay heed to warnings, the report said, noting that senior regional managers called for “unrealistic” sales goals to be scrapped.
“A suspiciously high numbers of consumers were also not making deposits into their accounts.
“Of the $75m in clawbacks, $28m in bonus awards will be taken away from Mr Stumpf and $47m from Ms Tolstedt. Mr Stumpf had already given back $41m in equity awards, while Ms Tolstedt forfeited $19m in equity and was forced out without severance pay. It brings to $180m the total amount of pay directors have taken from executives through forfeitures, clawbacks and other measures,” the FT reported.
Wells Fargo releases its first quarter results on Thursday night, our time, while the company’s 216 annual meeting will be held on April 25 where a motion to remove all but the three latest directors from the board will be put by shareholder advisory group, ISS.
This report will add to the pressure for more change on the Wells board. So what will Warren do?
