Andrew Harrer | Bloomberg | Getty Images
John Stumpf, chairman, president and chief executive officer of Wells Fargo & Co.
Wells Fargo CEO John Stumpf will seek to contain the damage to his bank's reputation Tuesday when he testifies before Congress on a scandal that has raised serious ethical questions about the company's business practices.
Members of the Senate Banking Committee plan to grill Stumpf over the revelation that the company secretly opened more than 2 million accounts without customers' permission, prompting a $185 million penalty as part of a civil settlement announced Sept. 8.
The company acknowledged "potentially unauthorized" bank accounts and credit card accounts were opened from 2011 through 2015, racking up $2.6 million in fees that have since been refunded to affected customers. A company spokesperson was not available to comment.
Wells Fargo agreed to pay $100 million in restitution to victims to a Consumer Financial Protection Bureau fund, $35 million to the Office of the Comptroller of the Currency and $50 million to the county and city of Los Angeles, which had initiated legal action.
"It is astounding to me that eight years after the financial crash we have a large financial company that seems to be operating without a moral compass," said Nora Freeman Engstrom, a Stanford Law School professor who studies ethics, in an interview.
Wells Fargo fired some 5,300 employees, or about 2% of its current workforce, over the fake accounts and has eliminated quotas for bankers, branch managers and district managers starting Jan. 1.
Here are four story lines to track during the Senate Banking Committee hearing Tuesday:
- How much did top executives know and when did they know it?
Stumpf has reportedly blamed the episode primarily on rogue employees. But questions about that explanation is mounting.
"It is very hard to believe any company has 5,300 rogue employees — and that will be something that will be pressed, I'm sure, in the hearing," Engstrom said.
- Were executives rewarded financially because of the fake accounts?
Several Democratic senators, including Elizabeth Warren of Massachusetts, are pressuring Wells Fargo to claw back bonuses from senior leaders, including former community banking chief Carrie Tolstedt. Tolstedt received $20 million in bonuses from 2010 through 2015, according to a letter sent Friday by Warren and other senators to the company.
Fortune magazine pegged Tolstedt's total stock and options from Wells Fargo at an estimated $125 million after years of the company bragging about "cross-selling ratios," while CNBC put it at $95 million. She retired effective July 31.
"Wells Fargo had a long-standing, systemic problem created by stringent sales quotas and incentives imposed by senior management," the senators said in their letter.
- Will the scandal halt anti-regulation proponents?
The scandal has given fresh material to Democratic politicians who are fighting a Republican push to roll back certain financial regulations contained in the Dodd-Frank legislative reforms.
"It probably weighs against any loosening of regulations," said Christopher Wolfe, managing director of financial institutions at Fitch Ratings, in an interview.
- Will customers revolt?
So far it appears the answer is no. But Wolfe said there's a risk that Wells Fargo's revenue could suffer as the AA-minus-rated company cuts back on actively trying to sell its customers on other products the company offers.
"To the extent they're having to change their incentive structures it could affect their financial performance going forward," Wolfe said.
No comments:
Post a Comment