Wells Fargo’s CEO to Face Senate Panel in Cross-Selling Scandalby and
Step taken after CFPB fines bank for creating fake accounts
Senate’s banking panel asks that CEO Stumpf appear to testify
Wells Fargo & Co. Chief Executive Officer John Stumpf was asked to testify in Washington on the bank’s alleged misconduct after it agreed to pay fines over claims that it opened more than 2 million unauthorized accounts. The lender instructed workers in U.S. call centers to temporarily halt cross-selling of financial products.
The Senate Banking Committee plans to hold a hearing Sept. 20 on Wells Fargo, following last week’s enforcement case in which regulators accused bank employees of opening deposit and credit-card accounts without customer approval to meet sales goals. Stumpf is among executives who’ve been asked to appear, a spokeswoman for the committee said Monday.
The allegations have been a black eye for San Francisco-based 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. The cross-selling suspension is among a list of the bank’s responses to the case.
“We asked the team to pause on the sales part of our calls,” Mary Eshet, a spokeswoman for the lender, said Monday. The Wall Street Journal reported earlier on the suspension and the hearing.
Wells Fargo shares declined 0.4 percent to $48.54 at 4 p.m. in New York, the worst performance in the 24-company KBW Bank Index. The lender’s stock has lost 11 percent this year, while the S&P 500 Financials Index has gained 1.6 percent. Jennifer Langan, a bank spokeswoman, declined to comment on the Senate hearing.
The lender expected higher call volumes from customers in response to news of the $185 million settlement, and from the busy post-Labor Day period, the company said. The Friday suspension will be reviewed later this week and doesn’t apply to workers at retail branches. Performance and incentive adjustments will made by the end of the month.
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,” the credit grader said in a report. The bank encouraged “pervasive inappropriate practices” and managers didn’t provide oversight of employees, Moody’s said. Results of examinations by the CFPB and the Office of the Comptroller of the Currency are credit negatives, according to the report.
“The regulators’ findings are consequential for a bank such as Wells Fargo, which historically has had strong customer satisfaction scores and a reputation for sound risk management,” Moody’s analyst Allen Tischler wrote. “We do expect some immediate damage to Wells Fargo’s reputation from this embarrassing episode.”
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. The lender said it fired 5,300 employees over the matter.
Moody’s said it expects the bank’s risk management and sales oversight will “ultimately be strengthened” by the regulators’ findings. It didn’t announce any ratings changes. Moody’s has an A2 rating on the bank’s long-term debt with a stable outlook.
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 claw-back” 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.