- Step taken after CFPB fines bank for creating fake accounts
- Treasury Secretary Lew says scandal shows need for CFPB
Wells Fargo & Co. eliminated product sales goals for its consumer bankers as the company seeks to reassure regulators, lawmakers and customers after employees opened more than 2 million accounts without clients’ approval.
“We want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers,” Chief Executive Officer John Stumpf said Tuesday in a statement.
The Senate Banking Committee plans to hold a hearing Sept. 20 on San Francisco-based Wells Fargo, following last week’s enforcement case in which regulators accused bank employees of opening deposit and credit-card accounts without approval to meet sales goals. Stumpf, 62, is among executives who’ve been asked to appear. Wells Fargo, which agreed to pay $185 million in fines, eliminated sales goals for retail bankers, effective Jan. 1, and instructed U.S. call center workers to temporarily halt cross-selling of financial products.
Mary Eshet, a spokeswoman for the lender, said the U.S. Labor Day holiday was an additional incentive to drop the strategy for now because the days following it are traditionally a period of heavy call volume. Eliminating cross-selling was aimed at reducing the expected backlog, she said.
The allegations have been a black eye for Wells Fargo, the biggest U.S. home lender and a marquee investment for billionaire Warren Buffett, whose Berkshire Hathaway Inc. is the bank’s largest shareholder.
Chief Financial Officer John Shrewsberry said the bank will be able to adjust to changes needed to deal with the scandal.
“We think we can adapt our business model, take sales goals out and still have a growth culture with people trying to deepen relationships with customers,” Shrewsberry said Tuesday at a conference in New York. “I think we can make this pivot in a way that protects our business model.”
Most of the employees involved were not motivated by the need to generate revenue, he said. “It was really more at the lower end of the performance scale, where people apparently were making bad choices to hang on to their job,” he said.
About 10 percent of the 5,300 employees terminated as a result of the problem were managers, the CFO said, adding that the bank refunded $2.6 million in fees for about 115,000 unauthorized accounts, or about $25 per account. Two-thirds of those affected were in the U.S. Southwest, according to Shrewsberry.
Wells Fargo declined 2.4 percent to $47.40 at 9:39 a.m. in New York, the worst performance in the 24-company KBW Bank Index, which dropped 1.4 percent. The lender’s stock has lost 13 percent this year, while the KBW Index fell 2.4 percent.
Revelations that bank employees had opened the accounts are “highly disturbing” and could hurt holders of the bank’s debt, Moody’s Investors Service said Monday.
The “deficiencies” uncovered by the U.S. Consumer Financial Protection Bureau and other government investigators show that the bank’s “vaunted cross-selling capabilities were inflated,” Moody’s said in a report. The bank encouraged “pervasive inappropriate practices” and managers didn’t provide oversight of employees, Moody’s said.
Treasury Secretary Jacob J. Lew said the scandal should be a warning to critics of the CFPB, which was created as part of the Dodd-Frank financial reform legislation.
“There’s a lot of talk in Washington these days about rolling back Dodd-Frank, about rolling back the law, changing the law that created the agency that uncovered and took action against this,” Lew said Tuesday in an interview on CNBC. “This ought to be a moment where people stop and remember how dangerous the system is when you don’t have the proper protections in place.”
The CFPB said last week that bank employees secretly opened the unauthorized accounts to hit sales targets and receive bonuses. The company agreed to resolve the allegations without admitting or denying wrongdoing.
Wells Fargo has come under fire from politicians since the fines were announced Thursday. Presidential candidate Hillary Clinton on Friday praised the consumer watchdog for its work. She said that Donald Trump, her Republican rival, wants to dismantle the CFPB.
The fines “probably should lead to a pay clawback” from Carrie Tolstedt, the Wells Fargo executive who ran community banking until the company announced her retirement in July, Mike Mayo, an analyst at CLSA Ltd., wrote in a note to clients Monday.
“These issues should have been caught sooner and dealt with more forcefully,” he wrote.
Tolstedt has unvested stock awards that would be worth about $17.8 million if the company hits certain financial targets. She’ll also get $3.07 million in retirement benefits, according to data compiled by Bloomberg. That doesn’t include previously vested stock options that would be worth $38.5 million if exercised at Monday’s stock-market close. Tolstedt, 56, also holds about $53 million of shares amassed during her 27-year career.