Wells Fargo CEO to Face Lawmakers 09/29 06:26
WASHINGTON (AP) -- Wells Fargo's CEO, newly stripped of tens of millions in
compensation in a scandal over sales practices, will face lawmakers with more
defenses than he had in the last round, when some senators called for his
Chief Executive John Stumpf comes into Thursday's hearing before the House
Financial Services Committee able to cite the millions he and another top
executive will forfeit, her departure from the bank, and an earlier date for
the aggressive sales quotas to end.
Whether the unusual takeback from his salary and stock will be enough to
save Stumpf's job is hard to say, and his testimony at Thursday's session could
play a role.
It was "a step in the right direction, but there are still dozens of
unanswered questions," said Sen. Sherrod Brown of Ohio, the Senate Banking
Committee's senior Democrat. He and the other Democrats on the panel asked
Stumpf on Wednesday to answer a series of 58 questions, including nearly two
dozen that they said he failed to answer at the hearing last week or for which
he promised to provide fuller information.
"We still don't know how many customers were harmed and how long this fraud
continued," Brown said in a statement. "We also don't know how many low-paid
employees got fired for failing to meet quotas that Wells Fargo now recognizes
were too high."
Bank employees, in a feverish drive to meet sales targets, opened up to 2
million fake deposit and credit card accounts without customers' knowledge,
issued and activated debit cards, and signed people up for online banking
without permission, according to regulators. The abuses are said to have gone
on for years, unchecked by senior management.
U.S. and California regulators fined San Francisco-based Wells Fargo $185
million. California Treasurer John Chiang also said Wednesday he's suspending
some of the state's business with the bank. He plans to stop using Wells Fargo
as the managing underwriter on certain categories of bond sales, will avoid
buying Wells Fargo securities and won't use the bank as a broker for investment
purchases for the next 12 months.
Chiang also said Stumpf should resign, and that the Wells Fargo board should
separate the chairman and CEO positions that he now holds.
The consumer banking giant, which is also the biggest U.S. mortgage lender,
fired about 5,300 employees starting in 2011 in connection with the sales
practices. The revelations sparked investigations by federal agencies and
bipartisan outrage in Congress.
At the highly charged hearing last week, Stumpf was barraged with criticism
from senators who accused the bank of outright fraud. He was chided for
scapegoating lower-level employees --- bank tellers, customer service reps and
branch managers --- rather than focusing on senior management's failures.
Stumpf apologized and promised action to make things right for customers who
were affected, a sentiment he is expected to reiterate Thursday. Customers
already have been refunded $2.6 million in fees slapped on unauthorized
products, the bank says.
The Wells Fargo board acted Tuesday to strip Stumpf and the executive who
ran the retail banking division of millions of dollars in pay, a move known as
a "clawback" that falls within company directors' authority. Stumpf, who earned
$19.3 million last year, will forfeit $41 million in stock awards.
He also is giving up any bonuses for this year, as is Carrie Tolstedt, the
former head of the retail operation. Tolstedt announced in July that she would
retire from the bank this year and had been expected to leave with as much as
$125 million in salary, stock options and other compensation. She is forfeiting
$19 million of her stock awards, and her departure was made immediate.
The outside directors on the bank's board didn't rule out the possibility of
pursuing additional repayment from Stumpf or Tolstedt, depending on the results
of an investigation they're conducting.
Few top bank executives have had their compensation clawed back in the years
since the financial crisis starting in 2008. While unusual, the move by the
board "was the right thing to do," said Charles Elson, a professor and director
of the Weinberg Center for Corporate Governance at the University of Delaware.
Short of forcing Stumpf to resign, the board may move to split the CEO and
company chairman roles that Stumpf holds, Elson suggested. Stumpf, CEO since
2007, added the chairman title in January 2010.
"It may be that he's asked to retire in a year or so," said Gene Grabowski,
a crisis management consultant who's a partner at the firm kglobal.
Tamar Frankel, a law professor at Boston University whose area of study
includes corporate governance, believes the best scenario would be for Stumpf
to keep his job but institute real changes.
"At the highest level, what went wrong was culture," Frankel said. The
guiding ethic was "if you bring in money, you're OK. If you don't, you're no