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Illegal Activity at Wells Fargo May Have Begun Earlier, Chief Says Wells Fargo Chief Accused of ‘Gutless Leadership’
(about 5 hours later)
WASHINGTON — The chief executive of Wells Fargo — where bankers opened secret and unauthorized credit card and deposit accounts for customers for at least five years in an attempt to meet sales goals — told a Senate panel Tuesday morning that the illegal activity might have gone on even longer and that no senior executives had been fired as a result. WASHINGTON — The more the chief executive of Wells Fargo tried to explain, the more skeptical the senators became.
Senators on both sides of the aisle expressed anger and indignation at the chief executive, John G. Stumpf, with several lawmakers calling for him to give back some of his rich compensation. For more than two hours testifying before the Senate Banking Committee on Tuesday, John G. Stumpf expressed regret that Wells Fargo had created as many as two million bogus bank and credit card accounts without its customers’ consent. He apologized for failing to stop the illicit behavior sooner, and vowed to make amends.
Although the bank has traced the illegal account openings to 2011, it is investigating whether they may have begun even sooner, Mr. Stumpf told the Senate Banking Committee. The executive who oversaw the retail bank, Carrie Tolstedt, was permitted to retire in July rather than be held accountable for the problems, Mr. Stumpf acknowledged. Some of the senators on the committee scoffed. Mr. Stumpf, they said, was offering little more than platitudes while allowing his top executives to avoid any real consequences — like being fired or having their enormous pay packages clawed back.
He defended that decision by saying that the responsibilities of her job included much more than just account openings. Instead, the bank’s lowest-paid workers have borne the brunt of the punishment, the senators noted. Senior management, they said, seemed to ignore this practice because it helped turn the bank into a profit machine.
But the senators seemed unmoved by Mr. Stumpf’s attempts to explain why more senior bank executives had not been tied to the widespread illegal sales activity. Bank employees may have opened as many as two million accounts in customers’ names without their knowledge. Addressing Mr. Stumpf directly, Senator Elizabeth Warren took the unusual step of telling the bank chief executive that he should resign.
Senator Elizabeth Warren, a Massachusetts Democrat, said the illegal sales were a big driver of Wells Fargo’s success as one of the nation’s most profitable banks. She called on Mr. Stumpf to resign and for him to be criminally investigated. “Have you returned one nickel of the money that you earned while this scandal was going on?” asked Ms. Warren, Democrat of Massachusetts. “Have you have fired any senior management, the people who actually oversaw this fraud?”
“Have you returned one nickel of the money that you earned while this scandal was going on?” asked Ms. Warren. She helped create the Consumer Financial Protection Bureau, which imposed its largest penalty ever on Wells Fargo for the sham accounts. “No,” Mr. Stumpf answered.
“Have you fired any senior management, the people who actually oversaw this fraud?” Ms. Warren continued.
“No,” Mr. Stumpf replied.
Ms. Warren added: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.”Ms. Warren added: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.”
More than 5,300 employees have been fired for the unethical sales since 2011, but they have been mostly lower-ranking workers, including many who say they felt pressured to bend the rules to meet the bank’s aggressive sales goals. It has been several years since a banking scandal has consumed Wall Street and Washington the way Wells Fargo’s problems have in recent weeks. The extent of the problems came to light on Sept. 8, when Wells agreed to a $185 million settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles city attorney.
Under intense questioning from both Democrats and Republicans, Mr. Stumpf said the bank employees who were terminated included “managers, and managers of managers, and an area president.” Unlike some of the arcane trading scandals that have befallen large investment banks recently, the illicit activity at Wells is easy for the public to comprehend: Bank employees were creating fake bank accounts to pad their sales numbers.
When pressed, Mr. Stumpf said other executives who had been held accountable included people involved in risk and “sales efficacy,” but he did not name them. As a result, thousands of Wells Fargo customers nationwide paid overdraft fees and late fees on credit cards and deposit accounts they never knew they had. The banks has refunded more than $2 million to its customers and is still reviewing whether other bogus fees were charged.
Mr. Stumpf, 63, arrived at the committee room shortly before 10 a.m. flanked by a large number of bank employees. His right hand was wrapped in a large bandage. A Wells Fargo spokeswoman said that Mr. Stumpf had hurt his hand playing with his grandchildren. He read five pages of prepared testimony before taking questions from the panel. The bank has said that it learned about the illegal practice in 2013 and traced it back to 2011, but in his deposition on Tuesday, Mr. Stumpf said that the unwanted account openings may have started earlier and that the bank was looking to see if it extended as far back as 2009.
For nearly two hours, he was criticized by lawmakers who said he was offering platitudes about his willingness to take responsibility for the illegal sales while escaping any real consequences. The Banking Committee, one member noted on Tuesday, showed a rare display of bipartisanship in denouncing Wells Fargo.
Mr. Stumpf also acknowledged for the first time since the scandal erupted on Sept. 8 that the illegal account sales were one reason that the former head of community banking, Ms. Tolstedt, left the bank in July. Mr. Stumpf’s testimony is likely to fuel public outrage rather than contain it.
Despite the widespread unethical sales in the community banking unit, Ms. Tolstedt was not fired but was allowed to retire, Mr. Stumpf said. Mr. Stumpf disagreed with senators when they described the illicit sales as part of a deliberate scheme to increase the bank’s bottom line. He said the 5,300 employees who had been terminated over the issue — many of them earning $12 an hour — deserved to lose their jobs.
Ms. Tolstedt received a retirement package that may amount to more than $100 million. Asked by Senator Richard C. Shelby, an Alabama Republican and the committee’s chairman, whether the huge sums that Ms. Tolstedt was paid when she left the bank should be clawed back, Mr. Stumpf said that such a decision should be left to the bank’s board. “The 5,300 were dishonest, and that is not part of our culture,” Mr. Stumpf said. “That is not scapegoating.”
“I am not part of that process. I want to make sure nothing I say will prejudice their process,” said Mr. Stumpf, who is the board’s chairman. Mr. Stumpf said the employees who were fired included “managers, and managers of managers, and an area president.”
Mr. Stumpf also suggested that the board was considering whether he should also lose some of his compensation, which last year totaled more than $19 million. The 63-year-old chairman and chief executive was repeatedly asked whether he would seek to claw back compensation from top executives who should have done more to stop creation of the sham accounts.
Given the public outcry over the phony accounts, Senator Bob Corker, a Tennessee Republican, said it would be “malpractice” if the bank did not claw back executive compensation. Many of those questions centered on Carrie Tolstedt, who ran Wells’s community banking operations, in which all of the problems occurred. She was allowed to retire at age 56 in July, with a compensation package totaling tens of millions of dollars. She is still eligible for additional compensation this year, the Senate panel revealed.
Mr. Stumpf said the bank had found evidence that employees were creating sham accounts as far back as 2011, but the problems did not come to his attention or that of the bank’s board until 2013. He said Wells Fargo was now investigating whether the illegal sales went back as far as 2009. “Explain to the public: What does accountability look like when an executive departs with millions of dollars?” asked Senator Richard C. Shelby, Republican of Alabama Republican and the committee’s chairman.
Mr. Stumpf said he had talked weekly with Ms. Tolstedt, first discussing the problem with the fake accounts in 2013, the same year it was exposed in a Los Angeles Times article.
Yet, the illegal activity continued for another three years, and employees were still being fired for creating the questionable accounts well into this year.
Despite this, Mr. Stumpf said he had not wanted to fire Ms. Tolstedt because she had performed well in other duties like branding and improving customer loyalty, which he said were “top of class” among large banks.
Mr. Stumpf said that the decision on getting back compensation rested squarely with the bank’s board. Even though it was pointed out to Mr. Stumpf by the committee that he was the board’s chairman, he was adamant that he could not get involved.
“I am not part of that process. I want to make sure nothing I say will prejudice their process,” said Mr. Stumpf, who was named board chairman in 2010.
He suggested that the board would also consider whether he should also lose some of his compensation, which last year totaled more than $19 million.
But Mr. Stumpf did not say whether he thought his pay — the highest among the nation’s top bank executives over the last five years — should be docked.
“You keep saying, ‘the board, the board,’” Ms. Warren said. “You describe them like they are strangers you met in a dark alley. Mr. Stumpf, you are the chairman of the board.”
Mr. Stumpf arrived at the committee room shortly before 10 a.m. flanked by a large number of bank employees. His right hand was wrapped in a large bandage. A Wells Fargo spokeswoman said that Mr. Stumpf had hurt his hand playing with his grandchildren.
Wells Fargo faces a separate investigation by the House Financial Services Committee. Mr. Stumpf has been invited to testify before that committee too.
Prosecutors in New York, North Carolina and California have opened inquiries into the sham accounts. But it is too early to say whether those investigations are focusing on potentially criminal behavior or civil offenses.
On Tuesday, Senator Jeff Merkley, Democrat of Oregon, called on the Securities and Exchange Commission to join the fray. He wants the S.E.C. to examine whether the bank violated internal control provisions of the Sarbanes-Oxley Act by failing to stop the “widespread fraud.”
During the Senate Banking Committee hearing, Mr. Merkley described how former Wells Fargo employees feared they would lose their jobs if they did not meet sales goals. Others worked weekends trying to keep up. And when they fell behind, Mr. Merkley said, some were coached by fellow employees on how to create the fake accounts.
“I am very sorry that that happened,” Mr. Stumpf told the panel. “That is not what we wanted to have happen.”