Wells Fargo CEO Testifies Before Senate Banking Committee
Wells Fargo CEO Testifies Before Senate Banking Committee
John Stumpf apologizes, faces grilling from legislators over bank’s sales practices
By: EMILY GLAZER and CHRISTINA REXRODE
Wells Fargo & Co. Chief Executive John Stumpf was attacked on Capitol Hill Tuesday by senators who contended that the bank’s leadership hadn’t taken enough responsibility for a scandal over its sales practices.
Mr. Stumpf on Tuesday repeatedly apologized for the behavior that led to employees creating as many as two million unwanted or fictitious customer accounts in an effort to meet sales goals. The bank fired thousands of largely lower-level workers in response.
But senators from both parties unleashed one of the harshest grillings of a bank executive since the financial crisis. Several said they wanted more top-level accountability, including return of executives’ pay, and more answers for customers.
Sen. Elizabeth Warren (D., Mass.), a vocal banking-industry critic, called for Mr. Stumpf to resign, return money earned during the sales scandal and be criminally investigated, saying he had shown “gutless leadership.”
Republicans also took a tough stance, especially around the bank’s “cross-selling” business model where consumers have more than one product or service with the firm. “This isn’t cross-selling, this is fraud,” said Sen. Pat Toomey (R., Pa.), referring to Wells Fargo employees setting up accounts for customers in products they didn’t ask for or know about. “Wells Fargo executives [were] completely out of touch.”
Mr. Stumpf, whose bank is the third-largest U.S. lender by assets, gave few new details about how bank executives discovered and then tried to stamp out the unauthorized behavior, which had been a practice since at least 2011. The bank earlier this month agreed to pay $185 million to settle allegations brought by two federal regulators and the Los Angeles City Attorney.
Mr. Stumpf on Tuesday said he was committed to helping aggrieved customers. “If I could turn the clock back, and I’ve thought about this a thousand times, of course I wish...we all wish we would have done something more,” Mr. Stumpf said. “We will do everything we can to make it right.”
Under the harsh questioning from Democrats and Republicans on the Senate Banking Committee, the 63-year-old executive didn’t quell many questions around the bank’s growing issues. While he remained calm throughout the nearly three-hour session, Mr. Stumpf at times rankled his questioners.
“You are still not acting fast enough,” Sen. Heidi Heitkamp (D., N.D.) told Mr. Stumpf. “You’re also not doing what you need do to restore confidence.”
The scene discouraged some analysts. “Stumpf came with no concessions, or bones, to throw the lawmakers,” wrote Ian Katz, director at Capital Alpha Partners LLC. “Everyone expected it would be a rough ride, but it turned out even worse.”
Still, investors took the political barbs in stride. No significant damaging revelations emerged beyond what was disclosed earlier this month when the bank agreed to settle with regulators. On Tuesday, Wells Fargo shares rose 1.2%, beating other bank stocks and reversing a bit of the underperformance suffered since the settlement was announced Sept. 8.
Mr. Stumpf, nursing a hand injury the bank said he suffered playing with his grandchildren, testified that he learned about sales-practice abuses in the firm’s branches in 2013, years after it began. The board learned the next year, he said. “Not fast enough,” Mr. Stumpf said. “I apologize for that.”
The senators accused Mr. Stumpf of fostering a culture where low-paid branch employees were pressured to meet impossible sales quotas to keep their jobs, and so signed up customers for products without their knowledge.
As the employees sold more products, Wells Fargo shares rose and bigger bonuses flowed in for the top executives, they said.
The bank said it has fired 5,300 employees over five years for wrongdoing, but Mr. Stumpf maintained the culture at the firm with 268,000 employees remained sound.
Senators pressed Mr. Stumpf to do more, including clawing back pay from top executives who oversaw the conduct and forgoing a bonus himself. “You are scapegoating the people at the very bottom,” said Sen. Jeff Merkley (D., Ore.).
Ms. Warren pressed Mr. Stumpf about whether the bank should punish top executives through smaller bonuses or clawbacks. When Mr. Stumpf demurred, she asked: “If you have no opinions on the most massive fraud that has hit this bank since the beginning of time, how can it be that you actually get to continue to collect a paycheck?”
“I disagree with the fact this is a massive fraud,” Mr. Stumpf replied.
Most discussion focused on Wells Fargo, though Sen. Jon Tester (D., Mont.) told Mr. Stumpf that Wells Fargo was “giving ammunition to the folks who want to break up the big banks.”
Sen. Richard Shelby (R., Ala.), the committee chairman who called the hearing, questioned why bank regulators hadn’t asked about these issues sooner. Democrats defended the Consumer Financial Protection Bureau, which fined Wells Fargo in the case. Regulators said they were looking into whether similar conduct took place at other banks.
In some of the most heated exchanges of the day, Mr. Stumpf elaborated on the role of former retail-banking head Carrie Tolstedt, who stepped down from her position in July and is set to retire at the end of this year.
Mr. Stumpf said he hadn’t thought about firing Ms. Tolstedt, but that he and Chief Operating Officer Timothy Sloan felt that Ms. Tolstedt hadn’t made enough progress on sales-practices issues and that the bank wanted to “go in a different direction.” Ms. Tolstedt ultimately decided to retire, he said. Ms. Tolstedt didn’t respond to requests for comment and the bank declined to comment on her behalf.
Mr. Stumpf also declined to comment on whether the scandal should affect his pay, which last year was valued at $19.3 million, or Ms. Tolstedt’s, who got a $9.05 million package, according to company filings. Mr. Stumpf said the matter is up to the human-resources committee of Wells Fargo’s board. Mr. Stumpf chairs the board, but doesn’t sit on the committee.
Wells Fargo also said Tuesday it is expanding its internal investigation to possible cross-selling abuses in 2009 and 2010. Previously, the bank had looked back through 2011. The bank will continue to work to reach affected customers.
During the hearing, Mr. Stumpf apologized at least a half-dozen times while still defending the bank’s core strategy of selling multiple products to each customer. “Cross-selling is all about pumping up Wells’s stock price, isn’t it?” Ms. Warren asked. “No,” Mr. Stumpf replied. “Cross-selling is short-hand for deepening relationships.”