Since the start of this decade, Wells Fargo employees have created millions of fake bank and credit card accounts to meet their sales goals. While those deemed at fault are being punished, the question is whether the consequences will equal the actions committed.
The details. From 2011-16, Wells Fargo collected $2.6 million in customer fees as its employees set up more than 1.5 million unsanctioned deposit accounts and more than 500,000 unapproved credit card accounts.1
Some years ago, Wells Fargo CEO Dick Kovacevich introduced the idea that “eight is great” – meaning that any household banking with Wells Fargo should eventually be sold eight of its products. This longstanding cross-selling objective seems to have fostered dishonesty at Wells Fargo, at least under the leadership of current CEO John Stumpf.1,2
The Los Angeles Times uncovered elements of the bank’s misbehavior in 2013, but only now has this story gained national attention. Last year, the City of Los Angeles sued the bank, which will now pay out $185 million in fines to the city’s coffers and to federal regulators. California’s enormous state pension funds, CalSTRS and CalPERS, have a combined $2.3 billion of invested assets sitting in Wells Fargo investment vehicles; the State of California is suspending business with the bank for at least one year.1,3
How is Wells Fargo reacting? It has fired roughly 5,300 employees who engaged in these frauds, and it will abolish sales goals for retail banking employees starting in October. CEO Stumpf will forfeit roughly $41 million in unvested stock; Carrie Tolstedt, the senior executive who oversaw Wells Fargo’s retail banking unit, will give up $19 million in outstanding stock awards of her own. (Tolstedt retired earlier this year.) Stumpf will forego his salary while Wells Fargo conducts an internal investigation of its business practices.1,4,5
What is the federal government doing to punish Wells Fargo? In the eyes of some lawmakers, not enough. On September 28, Federal Reserve chair Janet Yellen testified on banking regulation before the House Financial Services Committee.5
Yellen conceded that there has been “a very disturbing pattern of violations” not only in retail banking recently, but also in foreign exchange trading and mortgage lending conducted by financial institutions. She noted that regulators are subjecting banks to “exceptionally high standards of risk management, internal controls, [and] consumer protection,” adding that “we believe it is possible, even though it is extremely challenging, for organizations to comply.”5
Whether Stumpf stays or goes, the damage to the bank’s brand could be huge. If Stumpf is fired in the wake of this fiasco, that would be a landmark of sorts; it’s unusual for executives to be fired, even under circumstances like these. Wall Street analysts have noted the “superior” returns Wells Fargo has achieved under his leadership, and that praise may work in his favor.1
The trust of the consumer is priceless, and if the bank’s leaders try to shift blame for the scandal onto rogue branch managers and low-level employees, it could deepen the public relations fiasco for Wells Fargo.
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1 – forbes.com/sites/maggiemcgrath/2016/09/23/the-9-most-important-things-you-need-to-know-about-the-well-fargo-fiasco/ [9/23/16]
2 – bai.org/banking-strategies/article-detail/cross-selling-as-secret-sauce-for-success [11/21/14]
3 – nytimes.com/2016/09/29/business/dealbook/california-wells-fargo-john-stumpf.html [9/29/16]
4 – reuters.com/article/us-wells-fargo-accounts-idUSKCN11X2NW [9/28/16]
5 – nytimes.com/2016/09/29/business/dealbook/house-panel-questions-fed-chief-on-wells-fargo-scandal.html [9/29/16]