Wells Fargo Reports On Sales Scandal

Andrew Cummings
April 21, 2017

Wells Fargo said Monday that two former senior executives, including its long-time CEO John Stumpf, must return an additional $75 million in compensation after a scathing internal report found the bad sales practices that have rocked the mega bank date back far longer than initially acknowledged.

Senior Wells Fargo executives knew as far back as 2002 - almost a decade earlier than initially disclosed - that bank employees were setting up fake accounts that customers didn't want in order to meet aggressive sales goals, according to the 113-page report by the bank's independent directors. As NPR reports, the bank now says it has "recovered more than $180 million in executive compensation over the scandal" - roughly the amount of total fines imposed on Wells Fargo by CFPB a year ago.

Wells Fargo (NYSE:WFC) has announced its intentions to claw back tens of millions in additional compensation from top former executives involved in the fake account scandal that rocked the bank previous year. If you want evidence showing banks have grown too large to manage properly, Exhibit A is the 113-page report put out Monday by the Wells Fargo board, explaining how this once-well-regarded bank tumbled into a massive scandal involving staffers creating millions of sham customer accounts.

The scandal also resulted in the abrupt retirement last October of longtime CEO Stumpf, not long after he underwent blistering questioning from congressional panels.

But still, not everyone is convinced this is enough. "This hampered the ability of control functions outside the Community Bank and the Board to accurately assess the problem and work toward a solution", the board said.

Still, it seemed that Wells Fargo's top management either didn't recognize the enormity of the issue, or made few efforts to address this alarming problem, that was mushrooming fast. "Tolstedt effectively challenged and resisted scrutiny both from within and outside the community bank".

The investigation findings also allege that while the board was engaged in fixing the issue throughout 2015 and 2016, the scope of the problem wasn't accurately conveyed. In doing so, Wells Fargo has also apparently closed the coffin on the career of Carrie L. Tolstedt, who was prized as a superstar female leader before the bank fired her a year ago.

The report said Tolstedt downplayed reported problems and was unwilling to hear either internal or external criticism of her department.

A report obtained by CNBC detailed the findings of the investigation, which was overseen by a special board committee chaired by Stephen Sanger and including three other independent directors: Elizabeth Duke, Enrique Hernandez and Donald James. According to the report, the employees opened up to two million checking and credit card accounts without the consent of the customers.

The Comptroller of the Currency's Office is now investigating the sales cultures at each of the large banks, with that investigation expected to last at least through the summer. But people who ended up with a new Wells Fargo account they never asked for may be reimbursed for fees and other damages as part of a class-action lawsuit.

"The self-investigation and actions reported today by the Board of Directors of Wells Fargo are grossly deficient".

"Multiple board members have stated that they felt misled by the presentation", the report found. She is also the former head of Wells Fargo Securities in the Europe, Middle East, and Africa (EMEA) region and CEO of Wells Fargo Securities International where she oversaw investment banking and capital markets activities, including advisory services and sales and trading for EMEA.

"It was common to blame employees who violated Wells Fargo's rules without analyzing what caused or motivated them to do so", the report said. "Stumpf was by nature an optimistic executive who refused to believe that the sales model was seriously impaired", according to the report.

The San Francisco-based bank disclosed the steep financial penalties for its former chief executive and former head of its community banking arm in a lengthy report from independent directors on Wells Fargo's board.

Strengthened our ethics and risk management, including creating a new Office of Ethics, Oversight, and Integrity; adding protections so anyone can feel safe reporting his or her concerns to our Ethics Line; and expanding our training for our managers and bankers, so they can better respond.

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