Stumpf Pay Surrender Buys Time But Lawmakers Say It’s Not Enoughby and
CEO agrees to forgo $41 million as board investigates scandal
Senator Warren says actions ‘nowhere near real accountability’
John Stumpf’s decision to forgo $41 million in pay improves the chances for Wells Fargo & Co.’s embattled leader to defuse the bank’s bogus-account scandal, analysts say, though some lawmakers are calling for the lender to do more.
“This is a good first effort by Wells Fargo to start to move this behind them,” Paul Miller, a banking analyst at FBR Capital Markets & Co., said Wednesday in an interview on Bloomberg Television. “The question is -- and I do not have the answer -- is it enough?”
Stumpf, 63, voluntarily surrendered the millions in unvested stock, which reflected his performance back to 2013, and the board accepted, he told employees in a memo Tuesday. Carrie Tolstedt, who ran the community bank during the years when employees opened legions of unauthorized accounts to meet sales goals, will forgo about $19 million in unvested stock. Stumpf and Tolstedt, 56, who has left the firm, won’t get a bonus for this year.
Wells Fargo is under pressure to show it’s holding leaders accountable before Stumpf testifies at the House Financial Services Committee on Thursday. The CEO faced withering questions from lawmakers on both sides of the aisle during a Senate hearing last week, including calls from Massachusetts Democrat Elizabeth Warren for his resignation.
The bank’s decisions were “a small step in the right direction, but nowhere near real accountability,” Warren said Thursday in an e-mailed statement, reiterating her call for him to step down.
“Wells employees who tried to raise the alarm about the creation of fake accounts were fired. Their lives were turned upside down,” Warren said. “But John Stumpf is going to be just fine: he keeps his job and most of the millions of dollars he made while this massive fraud went on right under his nose.”
The total forfeited by the two executives would be more than 24 times the amount of fees the bank charged customers for the unauthorized accounts, according to KBW analysts led by Brian Kleinhanzl.
“The monetary loss should be enough to quell the outrage of interested parties and should buy the CEO more time to deal with the ongoing scandal,” Kleinhanzl wrote in a note. The company “will be able to manage through the scandal with current executive team intact,” he said.
The lender’s actions were “fairly comprehensive,” Royal Bank of Canada’s Joe Morford said in a note.
“While it is difficult to try to quantify the potential costs associated with these matters at this point, in our view any additional fines/penalties will likely be limited given the relatively modest financial damage to customers,” said Morford, who has an outperform rating on the stock.
Wells Fargo shares gained 1 cent to $45.10 at 11:21 a.m. in New York. The stock has tumbled about 10 percent since the bank announced a settlement with regulators, the worst performance in the 24-company KBW Bank Index.
The board said its independent directors will lead a company investigation into the matter, working with the human resources committee and the law firm Shearman & Sterling LLP, according to a statement Tuesday. The inquiry may lead to further compensation changes or employment actions, the company said.
That could include evaluating whether top executives including Stumpf should keep their posts, according to a person with knowledge of the panel’s deliberations.
“There are still dozens of unanswered questions,” Senator Sherrod Brown of Ohio, the banking committee’s top Democrat, said in a statement. “We still don’t know how many customers were harmed and how long this fraud continued.”
The news about executives forgoing pay and the board’s review won’t affect the House Financial Service Committee’s investigation into Wells Fargo, said a spokesman for Chairman Jeb Hensarling, a Texas Republican.
The U.S. Department of Justice, state attorneys general and Congressional committees have started “formal or informal” investigations into the sales practices that led to the bogus accounts, Wells Fargo said Wednesday in a regulatory filing. The bank settled initial government inquiries this month, paying $185 million in penalties without admitting or denying wrongdoing. It had already fired 5,300 workers over five years.
During last week’s Senate hearing, lawmakers from both parties faulted Stumpf for placing blame for the unauthorized accounts on lower-level employees, who they said were struggling to meet unrealistic sales goals. Warren also said that top bank executives tried to enrich themselves at the expense of workers who were making $12 to $16 an hour -- an assertion Nomura Holdings Inc. analyst Bill Carcache said Stumpf should contest at Thursday’s House hearing.
Stumpf should “push back harder against this insinuation,” Carcache wrote Tuesday in a note to investors. If the unauthorized accounts didn’t boost Wells Fargo’s financial performance, “it’s difficult for Nomura to see how they could have boosted executive compensation.”