Finance

Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Now that Wells Fargo Chairman and CEO John Stumpf is giving up $41 million in unvested stock compensation and his bonus for 2016, the lingering question is what else he may have to give up. 

Will it be his job? The "chairman" part of his title? More of his compensation? Or even his very freedom?

The statement from the independent directors on the company's board announcing an investigation of the fake-account scandal hints that there could be more shoes to drop, both for Stumpf and Carrie Tolstedt, the former head of community banking who will forfeit $19 million of equity compensation.

"These initial actions will not preclude additional steps being taken with respect to Mr. Stumpf, Ms. Tolstedt or other executives as a consequence of the information developed in the investigation." the statement read. 

The clawbacks are a tacit, if late, acknowledgement of what was obvious even to casual observers: Even if Stumpf was not complicit in perpetuating the fraud that resulted in as many as 2 million fake bank and credit-card accounts, he ultimately is responsible for both the aggressive cross-selling culture that inspired it and the lax compliance system that allowed it to snowball.

And, of course, he sure did bungle the response. 

First, there's the fact that the Consumer Financial Protection Bureau investigation into the accounts wasn't deemed "material" enough to disclose to investors until a settlement was reached. More than $20 billion in lost market value later, the investment community begs to differ.

Aggressive Selling
Wells Fargo's stock has dropped almost 10% since the scandal broke
Source: Bloomberg data

Then there's the fact that Stumpf struggled to defend himself in his appearance before the Senate committee. He talked about taking responsibility but had very little to show for it in the form of action -- resulting in an epic televised tongue-lashing from Senator Elizabeth Warren that went viral on the internet.

Yet despite all the well-deserved scrutiny of Stumpf, it's notable what alarm bells aren't ringing. The scandal has created no systemic risk to the economy or the banking system, or gyrations in markets. It's unlikely to create a London Whale-like dent to the company's financial statements. It seems unlikely it resulted in major costs to customers. (The bank has refunded $2.6 million in fees and, at least according to Goldman Sachs analysts, may only have to reimburse less than $50 million to customers whose credit scores were harmed.) 

The main question is how elastic the demand for Wells Fargo's services turns out to be -- not to pricing, but to reputation. The bank is scheduled to report third-quarter results next month, but so far the scandal has done little damage to analysts' projections for revenue and profit. In fact, estimates suffered a much greater impact from the lower-for-longer interest-rate sentiment:

Damage Assessment
Estimates for Wells Fargo's earnings for the rest of the year haven't moved much since the scandal broke
Source: Bloomberg data
Note: Based on average adjusted earnings-per-share estimate of analysts in a Bloomberg survey.

Maybe that helps explain why Warren Buffett, the bank's biggest shareholder and long-time booster, told Fox Business Network he's waiting until November to comment on the issue. 

A barely-there dent to the company's earnings may help ease the pressure on Stumpf, but will it be enough to fend off further calls for his resignation or even prosecution? 

There obviously has been a simmering rage in America over the past few years because no major bank CEOs have had their feet held to the fire. JPMorgan Chase's Jamie Dimon even managed to escape largely undamaged from the London Whale trading debacle that cost the bank more than $6.2 billion. He was dragged before Congress in 2012 and discussed how the trades were meant to reduce risk-weighted assets in order to comply with Basel Committee on Banking Supervision capital requirements, offering a hint of plausible deniability wrapped in a cloud of jargon.  

It appears at this point that plausible deniability is in short supply for Stumpf, so don't be surprised if he faces more ramifications than the clawbacks announced Tuesday. The focus on cross-selling is what's being blamed for creating the scandal -- and in Warren's viral video she wielded conference-call transcripts of his cross-selling boasts like a prosecutor with a bloodstained weapon. 

While the ultimate economic damage from the Wells Fargo scandal may not be great, that may not make much difference for Stumpf's fate. This is 2016 and viral videos matter. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net