Daily Management Review

Senators demand that John Stumpf of Wells Fargo resigns


Senate Banking Committee hasn’t had such a stormy session since the 2008 crisis, notes WSJ and Bloomberg. John Stumpf, Head of Wells Fargo, got attacked by both Democrats and Republicans. "You have to resign and return remuneration for the period during which the violations lasted, and the Ministry of Justice and the Securities and Exchange Commission (SEC) should initiate a criminal case in relation to you" - said Senator Elizabeth Warren.

Justin Ruckman
Justin Ruckman
Stumpf’s compensation for 2015 is estimated at $ 19.3 million, mainly in the bank's shares and options.

Two weeks ago, Wells Fargo agreed to pay $ 185 million to settle out of court claims of the US Bureau of Consumer Financial Protection (CFPB), Office of the Comptroller of the Currency (OCC) and the Attorney of Los Angeles. It turned out that retail division of Wells Fargo without knowledge of customers has been opening 2 million accounts and loans on interest fees during a few years. On average, customers paid $ 25 for unjustly accrued commission. The bank agreed to pay $ 2.6 million to victims of compensation.

At the hearing, Stumpf repeatedly apologized for the breach, and told how Wells Fargo is trying to solve the problem. According to him, the bank introduced checkouts in the retail division in 2011, each of which fired approximately 1,000 employees responsible for violations annually. In 2012, Wells Fargo started to lower targets for sales staff. By his own admission, Stumpf found violations only in 2013, the bank's board of directors - in 2014. In 2015, an inspection revealed violations and the bank hired PwC to see if customers were affected. According to Stumpf, Wells Fargo did not inform the SEC about the violations because "it was an insignificant event." "If I could turn back time, I would have thought a thousand times, - said Stumpf - but we will do everything in our power to correct the situation."

However, he did not convince the senators. Warren was outraged. "In 2008, the Wall Street promised to change, but still continues to do the same. A major bank is deceiving the citizens, and its top managers are stuffing pockets". "It was not cross-selling, it was a fraud, but Wells Fargo management was completely out of the loop." - said Sen. Patrick Toomey

"Stumpf has not prepared any concessions, no bones to throw to lawmakers - Director Capital Alpha Partners Ian Katz quoted by WSJ. - Everyone understood that it would not be easy, but it was even worse."

"Growth of the society’s attention" led to the scandal around Wells Fargo will lead to new investigations, JPMorgan analysts warned. On Wednesday, shares of Wells Fargo fell 2.2%, while shares of its main competitors - JPMorgan, Bank of America and Citigroup - have risen in price by 0.5-0.8%. Because of the scandal, Wells Fargo has ceased to be the most expensive bank in the world.

source: wsj.com, bloomberg.com