Wells Fargo seeks to shore up reputation in wake of scandal

Wells Fargo has been hit hard by allegations that its staff opened more than 2 million bank accounts and credit cards for customers without their consent in a bid to meet internal sales goals


Politicians are calling for an investigation, and Wells Fargo and regulators are expected to testify in the Senate next week. Photo: Bloomberg
Politicians are calling for an investigation, and Wells Fargo and regulators are expected to testify in the Senate next week. Photo: Bloomberg

New York/Washington: Wells Fargo & Co. scrapped its product sales goals for retail bankers on Tuesday and may take further disciplinary action against its employees in the wake of a fake account scandal that has already led to $190 million in fines and the firing of 5,300 employees.

Wells Fargo has been hit hard by allegations its staff opened more than 2 million bank accounts and credit cards for customers without their consent in a bid to meet internal sales goals.

Politicians are calling for an investigation, and Wells Fargo and regulators are expected to testify in the Senate next week.

One of the US’ largest and most respected financial institutions, Wells Fargo built itself into the most valuable US bank after the financial crisis partly because it did not rely on risky trades or complex derivatives to turn a profit.

But the company’s shares have lost around 7% of their value since last week, when US regulators unveiled the fines against the bank , and it has ceded its position as the largest US bank by market capitalization to rival JPMorgan Chase & Co .

Also Read: Why the Wells Fargo story matters to us

Wells Fargo—which was long the envy of the banking industry for its ability to sell multiple products to the same customer—agreed to pay $185 million in fines and $5 million to customers last week after reaching a settlement with three regulators over the alleged sales abuses.

The phantom accounts meant that some customers were charged for insufficient funds, according to the regulators.

During a CNBC appearance on Tuesday evening, chief executive John Stumpf apologized and said management takes responsibility for the problems identified in the settlement. Although the bank has eliminated sales goals for retail staff, Stumpf said “cross-selling” products from various businesses to customers is still important to growing its business.

“We still love-cross selling,” he said, later adding, “Cross-sell is shorthand for deep, long-term relationships. We love that.”

Even after firing more than 2% of its staff for improper selling, Wells Fargo is still examining its practices, Chief Financial Officer John Shrewsberry said earlier in the day.

The bank will “take a big wide fresh look at who knew what and when and what else might have been done,” he said speaking at an industry conference.

Shrewsberry said the review would impact people “at all levels of the organization.”

Carrie Tolstedt, the head of the bank’s retail operations where the abuses are alleged to have occurred, stepped down in July. The controversy has led to calls for the bank to claw back bonuses paid to her.

Tolstedt received a pay raise in March, after getting more than $9 million in cash and stock last year. She left with more than 2.5 million in Wells Fargo shares, currently worth around $120 million.

A Wells Fargo spokeswoman said Tolstedt had “made a decision to retire at the end of this year.” Tolstedt could not be reached for comment.

Stumpf said clawback decisions are determined by the board of directors, and that product sales goals are not a component of compensation for any senior executives.

Political heat

The bank’s practices have also drawn scrutiny from Washington, with staff members for the Senate Banking Committee, which oversees the banking industry, set to meet with representatives of the bank.

Stumpf, Cordray and Tom Curry, from the Office of the Comptroller of the Currency, will testify before the committee next week.

Torrie Matous, spokeswoman for the committee’s chairman, Richard Shelby, a Republican from Alabama, said staff had “been arranging briefings and collecting information from both Wells Fargo and the regulators” to prepare for a 20 September hearing.

Five Democrats on the committee, including Senator Bob Menendez of New Jersey and Senator Elizabeth Warren of Massachusetts, have pressed for an investigation.

The top Democrat on the banking committee, Ohio’s senator Sherrod Brown, wants the panel to probe deeper than a single hearing, “so we can get answers on how this massive fraud happened, what’s being done to make customers whole, and how to put safeguards in place to protect against its recurrence.” Reuters

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