Watching the news last week, I was jolted out of my seat by Connecticut Senator Elizabeth Warren’s withering condemnation of Wells Fargo CEO John Stumpf.
As reported in the Boston Herald (Sept. 21), “ ‘You should resign,’ Warren told … Stumpf… during a Senate Banking Committee hearing yesterday. ‘You should give back the money you took while this scam was going on, and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.’
“Stumpf and Wells Fargo are under intense scrutiny after allegations that more than 5,000 bank employees opened over 2 million bogus bank and credit card accounts for customers without their knowledge in order to meet sales quotas. Employees created accounts with fake email addresses for real customers in order to meet an internal target of eight accounts for each customer.”
How many accounts were Stumpf-ed?
According to The Denver Post (Sept. 22), “About 565,000 of the 2 million potentially bogus accounts were for credit cards…”
“I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members, and to the American public.”
Stumpf denied that so-called “cross-selling” – selling a different product to an existing customer – was a money-making scheme designed to add new accounts to existing customers.
However, reading from a quarterly earnings conference call, Warren said that Stumpf “cited Wells Fargo’s success at cross-selling retail accounts as one of the main reasons to buy more stock in the company.”
“You haven’t resigned,” Warren added, “you haven’t returned a single nickel of your personal earnings, you haven’t fired a single senior executive. Instead, evidently your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership.”
“Wells Fargo was fined $185 million by regulators,” The Herald added, “and fired the 5,300 employees behind the fake accounts. But Carrie Tolstedt, the executive who ran the unit responsible for opening up the phony accounts, was awarded a $124.6 million payday. Stumpf told the committee the bank’s board is exploring a so-called ‘clawback’ provision that would force Tolstedt to give up some of her windfall.”
“Exploring”?… “to give up some”? … “from the executive who ran the unit responsible”?
Last Tuesday (Sept. 27), the Wells Fargo board announced that, “it would claw back compensation valued at $41 million from… Stumpf.”
And “Carrie Tolstedt… will surrender stock grants valued at about $19 million…”
While “surrendering” $19 million in stock grants, Tolstedt apparently gets to retain $105.6 million. Oh, and as of this writing, she gets to keep her job.
“While his star was rising on Wall Street and he became the industry’s highest-paid banker,” The Times reported (Sept. 19), “Mr. Stumpf criticized the ‘plethora of new regulations’ on banks.
“ ‘I think we have gone too far’ in terms of regulation, he told an interviewer in 2013, the same year he was named Banker of the Year by The American Banker, a trade publication.
“It was also the same year that the creation of the sham bank accountants hit their peak…
“ ‘This is a particular reversal for him,’ said Barney Frank, the former congressman from Massachusetts who co-wrote Dodd-Frank, the 2010 legislation that overhauled the financial industry. ‘He regarded himself as the best person situated to criticize what some people regarded as regulatory excess.’ ”
While Sen. Warren and others are calling for investigations into the fraud, California State Treasurer John Chiang announced more immediate action.
“…Chiang,” The Times writes (Sept. 28), “said he was suspending Wells Fargo’s ‘most highly profitable business relationships’ with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.
“On Tuesday alone, he said, he had pulled Wells Fargo off two large municipal bond deals.
“ ‘How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who placed their financial well-being in its care?’ Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.
“Mr. Chiang said he was also suspending making any additional investments in Wells Fargo securities and would suspend the bank’s work as a broker-dealer hired to buy investments on the treasurer’s behalf.
“The suspensions will last for one year, Mr. Chiang said, or longer if he finds evidence that Wells Fargo has ‘re-engaged in the same behavior’ or failed to abide by the terms of a consent order it signed with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.”
Last Thursday, Stumpf faced yet another grilling before the House Financial Services Committee. Republican Jeb Hensarling told Stumpf, “To the American people, this kind of feels like déjà vu all over again.”
“As Mr. Stumpf testified,” The Times reports (Sept. 30), “a video screen on the hearing room’s wall displayed a scroll of more than a dozen fines Wells Fargo has paid in recent years, totaling more than $10 billion. The list included penalties for subprime loan abuses, discriminating against African-American and Hispanic mortgage borrowers, and foreclosure violations, among others. …
“The plight of Wells Fargo workers who lost their jobs for not meeting sales goals came up several times during the hearing, with lawmakers citing personal experiences from their constituents. Representative Nydia M. Velázquez, Democrat of New York, asked how many workers Wells Fargo had fired for falling short.
“ ‘My understanding is that people should not be fired, terminated for missing sales goals,’ Mr. Stumpf answered. ‘I’m not saying it didn’t happen. We’re doing a review of whatever, whoever might have been terminated for that.’ ”
Just yesterday, CBS News added another wrinkle when they reported that a former Wells Fargo employee from a branch in St. Helena, California warned the bank in 2008 about the cross-selling scheme.
“I started noticing what I thought were honest mistakes. But then these honest mistakes, you know, became a very clear pattern,” Yesenia Guitron said.
“People ending up with 10-to-15 debit cards that they didn’t request,” Guitron said.
“For one customer?” reporter John Blackstone asked.
“For one customer,” Guitron responded.
She took her complaints up the chain of command from the branch manager to human resources and finally, the bank’s ethics department. All ignored Guitron.
“Constantly emailed them back, you know, this is happening. What did you find? What are we going to do?” Guitron recalled.
All ignored Guitron.
As she continued her complaints, the branch manager told her she was fired and showed her the door. Guitron filed a lawsuit in 2010 for retaliation. Her claim was dismissed by a judge who believed Wells Fargo’s story that she “failed to meet her sales goals, and that she was thus not performing her job satisfactorily.”
Six years later, we now know different.
“You fired 5,300 people,” Representative Sherman told Stumpf at the hearing. “You took 5,300 good Americans and turned them into felons.” It is time, he concluded, to break up the big banks.
Illinois state Treasurer Michael Frerichs announced (Oct. 3), that the state will suspend approximately $30 billion of investment activity with the bank due to the issue.