Ripple effects spread out from Wells Fargo fake account fiasco
Unlike nudging Libor or Forex rates, it is easy to grasp that it is wrong to open bank accounts without a customer’s permission. The ease of understanding the mess is why I think the Wells Fargo fiasco is growing rapidly.
Here’s my free tip of the day on how not to handle a crisis: don’t blame it on the employees who got fired for breaking the rules to meet sales quotes set by management. That is the current strategy of the CEO:
9/13 (in print edition on 9/14) – Emily Glazer (have seen her name a lot on this story) and Christina Rexrode at Wall Street Journal – Wells Fargo CEO Defends Bank Culture, Lays Blame With Bad Employees – In an interview with WSJ reporters on Tuesday, the CEO blamed the whole mess on misbehaving employees. He insisted there were not any incentives to improperly open accounts.
In the same interview, he indicated the bank will end its sales quotas for customer-facing staff.
Article says the bank’s CFO has said that about 10% of the staff who were fired were at the branch manager level or higher. That means somewhere around 500 mid-level managers were fired for misbehavior.
Drop in stock price – $WFC stock fell 3.3% on Tuesday. For perspective, the Dow Jones Industrials closed down 1.41%, S&P 500 was off 1.48%, NYSE Composite down 1.92%, and the DJ Total Stock Market slipped 1.54%.
This moved into the political realm at the speed of a news cycle:
9/12 – Wall Street Journal – Senate Banking Committee to Host Wells Fargo Hearing – Late Monday, the majority members had lined up hearings on 9/20. Bank leaders were expected to brief congressional staffers on Tuesday (yesterday) and meet again later in the week.
As is always expected, Senators with no assigned authority over banking or anything related to this issue want to get their name in the paper. See article.
Another dimension that will feed public fury:
9/12 – Fortune – Wells Fargo Exec Who Headed Phony Accounts Unit Collected $125 Million – The executive in charge of the community banking division announced her retirement in July of this year. For context, that was a month or two before the settlement was announced and a long time after the LA City Attorney sued Wells in 2015, naming her specifically.
Her responsibilities since 2009 have included the retail banking and credit card divisions, where the abusive behavior started in 2011. I’m guessing the vast majority of the improprieties were in retail banking.
Her annual salary has been $1.7M for each of the last several years.
In 2015 her bonus, as discussed in the proxy statement, was $7.3M, bringing her total comp to $9.0M for the year.
She leaves with $124.6M in deferred compensation consisting of stock and options. That is also something that is super duper easy to explain in print and on the air. I expect to hear that mentioned often.
The article cites a low-level representative who did not know whether Wells Fargo would claw back any of the bonuses. I don’t read much into that comment because it would be too early for that decision to be made and a front-line PR person would not be privy to any of those types of discussions.