Senators urge ‘immediate’ hearings on Wells Fargo sales practices
Senators urge ‘immediate’ hearings on Wells Fargo sales practices
By: Deon Roberts
A group of U.S. senators called Monday for immediate hearings into revelations Wells Fargo employees opened fraudulent customer accounts, as the San Francisco bank faced other fallout over the matter.
In addition Monday, credit-rating firm Moody’s Investors Service said the conduct by the bank’s employees were a “credit negative” for Wells, putting it at risk of a downgrade. Both moves came after Wells Fargo agreed Thursday to pay $185 million in fines to resolve claims employees opened accounts that customers may not have authorized.
Also Monday, a prominent bank analyst said the revelations leading to the settlement probably should result in a claw-back of compensation of Wells Fargo’s head of community banking, Carrie Tolstedt, who in July announced plans to retire at the end of this year.
Wells Fargo declined to comment.
It all adds up to the latest heat felt by Wells Fargo, whose largest employment base is in Charlotte, following claims by regulators that employees took part in a “widespread illegal” practice of secretly opening more than 2 million deposit and credit card accounts.
In a letter Monday, five Democratic members of the Senate Banking Committee wrote that the “magnitude of this situation warrants thorough and comprehensive review.” The letter, sent to committee Chairman Richard Shelby, also calls for the committee to “thoroughly examine this issue, including: how it is possible that more than 5,000 employees could bilk customers over the course of five years.”
It’s unclear whether such a hearing will take place. A spokeswoman for Shelby, an Alabama Republican, told the Observer Shelby’s office is arranging briefings and collecting information from Wells Fargo and regulators “to determine if further action by the committee is needed.”
The senators called the behavior of the banks’ employees a “critical issue” and said the committee should take “prompt action” to probe its cause, scope and impact – as well as any additional safeguards that may be needed to prevent similar behavior in the future.
Wells Fargo agreed to pay the penalties to the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the city and county of Los Angeles to resolve allegations of abusive practices that regulators said dated to 2011.
Regulators said the bank’s employees, spurred by sales targets and bonuses, in some cases created phony email addresses to enroll consumers in online banking without their knowledge. Such moves came as Wells Fargo sought to distinguish itself as a leader in “cross selling,” the practice of selling multiple products to a single customer, regulators said.
In reaching Thursday’s settlement, Wells Fargo did not admit or deny allegations. The bank has said it’s taken steps to prevent similar behavior, including lowering sales goals and investing in enhanced monitoring of employees. The bank has also noted it fired 5,300 people between January 2011 and March 2016 for secretly opening the accounts.
In its report, Moody’s called the regulators’ findings “highly disturbing” and said “consequential” for a bank like Wells Fargo, which Moody’s said historically has had a reputation for sound risk management.
One of the biggest credit-rating agencies, Moody’s has an A2 rating on Wells Fargo’s long-term debt, with a stable outlook. The firm did not announce any ratings changes for Wells Fargo, saying it expect the bank’s risk management and oversight of its sales practices ultimately to be strengthened by the revelations.
Bank analyst Mike Mayo, in a report Monday, said the Wells Fargo findings should probably result in a claw-back of pay for Tolstedt, who announced in July she had decided to retire at the end of the year at age 56.
“These issues should have been caught sooner and dealt with more forcefully,” Mayo wrote.
Tolstedt, who is based is San Francisco, was one of the Wells Fargo’s highest-paid executives in 2015, making $9.1 million in salary, bonus and stock awards.
According to Bloomberg, she will walk away with unvested stock awards that would be worth $17.8 million at Friday’s close if Wells Fargo hits certain financial targets. She’ll also get $3.07 million in retirement benefits. That doesn’t include another $38.7 million in stock options that have already vested to Tolstedt and aren’t considered termination payments.
Wells Fargo has named Charlotte-based Mary Mack as Tolstedt’s replacement. The bank has said Tolstedt made a personal decision to retire, while declining to comment further on her departure.
According to regulators, Wells Fargo built an incentive-compensation program that made it possible for employees to pursue “underhanded sales practices” in order to receive bonuses. It appears the bank failed to adequately monitor such incentive programs, regulators said.
In their letter, the senators urged the Senate Banking Committee to investigate whether Wells Fargo’s sales culture and compensation structure incentivized employees to engage in deceptive and abusive practices.
The Senators also said the committee’s investigation should include testimony from Wells Fargo CEO John Stumpf, who received $19.3 million in total compensation in 2015.
“As members of the United States Senate Committee on Banking, Housing, and Urban Affairs, we should accept nothing less than a full and transparent explanation of what went wrong, who is responsible, how to fix it, and how to prevent such fraud in the future,” the letter says.
The senators who signed the letter are New Jersey’s Robert Menendez, Ohio’s Sherrod Brown, Massachusetts’ Elizabeth Warren, Rhode Island’s Jack Reed and Oregon’s Jeff Merkley.
Wells Fargo’s fine amounts to less than 1 percent of its more than $22 billion in profit earned in 2015. Like many settlements involving the banking industry since the financial crisis, no executives are being prosecuted.
“There is a need, I think, for focus on individuals as well as the fines put on the institutions,” Fed Gov. Daniel Tarullo said in CNBC interview Friday. There are “things that do need to be pursued in order to make the point that there is individual culpability, as well as collective.”
The claims against Wells Fargo have been a blow to the reputation of a bank known for a Main Street image and avoidance of many of the missteps that ensnared some of its peers in the financial crisis.
Wells Fargo rode that reputation to overtake Citigroup as the third-largest U.S. bank by assets, and to become the most valuable bank on the planet by combined dollar value of all its outstanding shares – both milestones Wells Fargo reached last year.
Wells Fargo’s push to restore its image has included taking out full-page ads in some newspapers nationwide to express regret and claim full responsibility for employees’ actions.
Such moves are designed to counter the barrage of negative comments the bank continues to generate on social media.
“If I had an account @WellsFargo given what was discovered yesterday I sure would change banks now,” TV personality and personal-finance expert Suze Orman tweeted.
Comedian Stephen Colbert and host of “The Late Show” took this jab on Twitter:
“Gotta say, I’m feeling a lot less guilty about stealing that pen from my local Wells Fargo branch.”