Wells Fargo Does Damage Control Before Washington Grilling

Banking's Mr. Clean Stares Down Account Scandal
  • COO Sloan has been meeting with policy makers ahead of hearing
  • Some lawmakers are frustrated by lack of answers on clawbacks

Wells Fargo & Co. has started doing damage control on Capitol Hill.

Tim Sloan, the bank’s president and chief operating officer, has spent most of the week reaching out and meeting with members of Congress and their staffs in Washington, as the lender confronts blowback over allegations it opened more than 2 million accounts without customers’ approval, said people with direct knowledge of the discussions. With the Senate Banking Committee preparing to hold a Sept. 20 hearing on the scandal, Sloan and other Wells Fargo executives are spending time in the offices of Chairman Richard Shelby and top Democrat Sherrod Brown, and have targeted others on the committee.

Sloan, who is viewed as a potential successor to Chief Executive Officer John Stumpf, has repeatedly apologized for the bank’s conduct and conceded that it took the lender too long to address the misconduct, said the people who asked not to be named because the meetings were private. He’s also walked Republican and Democrat lawmakers or their staff through a timeline of Wells Fargo’s own investigation into the alleged wrongdoing and how it responded. Still, some policy makers who’ve met with Sloan said they’re frustrated with his refusal to say whether executives will be fired or whether the bank will try to claw back pay from managers.

Jennifer Dunn, a spokeswoman for Wells Fargo, declined to comment on the meetings.

The grillings are a closed-door preview of what is expected to be a contentious hearing next week, with both Republicans and Democrats eager for explanations into what went wrong, how much senior executives at Wells Fargo knew and what the bank is doing to ensure similar misdeeds don’t happen again.

‘Undermines Trust’

“This undermines the trust of the American people in the banking system and that’s not good," Shelby, an Alabama Republican, said in an interview. “I have talked to the CEO, John Stumpf. I told him we’re going to give him a chance to explain what happened."

Wells Fargo agreed to pay $185 million last week to the Consumer Financial Protection Bureau and other regulators to resolve claims that employees opened more than 2 million accounts that consumers may not have known about. U.S. Attorneys in New York and San Francisco have opened criminal inquiries, a person familiar with the matter said, adding that under Justice Department guidelines, investigators will look into both potential corporate and individual wrongdoing.

Revelations that the bank fired 5,300 employees over the mis-selling have triggered a litany of lawmaker questions about the bank’s culture and why management didn’t stop the misconduct sooner.

To address the allegations, Wells Fargo has agreed to compensate customers who were affected, and has eliminated product sales goals for its consumer bankers and instructed U.S. call center workers to temporarily halt cross-selling of financial products.

That may not be enough to satisfy politicians on both sides of the aisle, who are concerned that the incident shows systemic problems at Wells Fargo.

“This was one of the worst examples of anti-consumer conduct I’ve seen since the financial crisis," said Senator Mark Warner, a Virginia Democrat, who met with Sloan. “I have deep concerns about Wells Fargo’s response to this prolonged fraud, including why it took so many years and insufficient steps to stop the misbehavior.”

CFPB Defense

Some are taking it a step further, saying the Wells Fargo allegations illustrate the difficulties large, multinational banks face in managing so many employees and businesses.

“These organizations are large, they are complex, they are spread out," said Senator Bob Corker, a Tennessee Republican. Corker referenced the London Whale at JPMorgan Chase & Co., where traders made bets that resulted in more than $6.2 billion in losses, as another example of a bank unable to police certain activities.

Progressive Democrats in the Senate including Elizabeth Warren and Jeff Merkley have used the incident to reiterate the need for the Consumer Financial Protection Bureau and attack U.S. House Republicans who advanced legislation earlier this week to undo the 2010 Dodd-Frank Act.

“Wells Fargo proved that giant banks still think the rules don’t apply to them," Warren said in an e-mail sent to donors and supporters. “They think they can cheat their customers, stuff their pockets with money, and still walk away.”

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