Wells Fargo employees had opened roughly two million deposit and credit card accounts customers never asked for. On September 20, 2016, chairman and chief executive John Stumpf appeared before the Senate Banking Committee. He had already said, repeatedly, that he was accountable. Senator Warren began by reading the company’s own values statement back to him.
The 5,300
Chairman Shelby went first, to the employees the bank had already fired.
ShelbyWells Fargo fired approximately 5,300 employees in connection with these practices. What were the criteria for termination? And were any personnel actions taken short of termination? And if so, what were they? In other words, I am sure you did not fire everybody, but did you discipline some, and why, and so forth?
StumpfYes, so, Senator, thank you for that question, and it is a good one. We have a number of triangulations around how to understand when there might be improper behavior. If some customer, for example, all of a sudden shows up with three savings accounts, they probably do not need that. Or we have EthicsLines. We have a culture in the company, if you see something that you do not think is proper, raise your hand, talk to a manager.
StumpfSo we looked at a number of situations, and some of them were perfectly legitimate. But for those who broke our trust, were dishonest, put customers at risk, we do have a very bright line. And, after all, we are a regulated institution, and we have a fidelity bond, and people who behave in this way simply cannot work here.
ShelbySpecifically, when did you find out that thousands of your employees were opening unauthorized accounts or fraudulent accounts? Did it take that long? When did you find out?
StumpfAfter they had been working on this issue for a couple of years--and, again, this was way too many people, but it was 1 percent of our people. There are at any one time 100,000 team members in our banks, and after we noticed--after the business was dealing with this for a couple years, it was then brought to the holding company.
ShelbyDoes it bother you as the CEO of such a large bank that systemic fraud was not brought to your attention sooner by your employees?
StumpfIf I could turn the clock back--and I have thought about this a thousand times--of course, I wish I would have done--we all wish we would have done something more, earlier. We did not get on this fast enough.
[Hearing transcript, September 20, 2016, questioning by Chairman Shelby.]
The buck stops here
Shelby turned to Carrie Tolstedt, who had run community banking through the years in question and left the bank with her stock intact.
ShelbyExplain to the American public today here what accountability at a large bank looks like when an executive departs with millions of dollars in compensation after thousands of their employees defrauded customers?
StumpfBut I also want to be clear: Carrie was eligible to retire. When she was told that we are going to go in a different direction, she chose to retire, and she got no retirement severance benefits
ShelbyThat would be clawback? You have the ability at the bank to claw back, do you not?
StumpfYou know, I am not an expert in compensation, but I will get you whatever----
ShelbyYou are the CEO of the company, right?
StumpfI am the CEO----
ShelbyAnd so are you the Chairman of the Board?
StumpfI am the Chairman of the Board.
StumpfBut I do not--excuse me.
ShelbyAnd the buck stops here, so to speak.
StumpfIt stops--I am the senior officer.
ShelbySo are you going to look into this seriously about what this person did, her responsibility, and the big reward that she is getting that happened under her watch?
[Hearing transcript, September 20, 2016, questioning by Chairman Shelby.]
The three questions
WarrenMr. Stumpf, the Wells Fargo Vision and Values Statement which you frequently cite says, "We believe in values lived, not phrases memorized. If you want to find out how strong a company's ethics are, do not listen to what its people say. Watch what they do."
WarrenSo let us do that. Since this massive, years-long scam came to light, you have said repeatedly, "I am accountable." But what have you actually done to hold yourself accountable? Have you resigned as CEO or Chairman of Wells Fargo?
WarrenHave you resigned?
StumpfNo, I have not.
WarrenAll right. Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?
StumpfWell, first of all, this was by 1 percent of our people and----
WarrenThat is not my question. My question--it is about responsibility. Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?
StumpfThe board will take care of that.
WarrenHave you returned one nickel of the money you earned while this scam was going on?
WarrenI will take that as a "no" then.
WarrenHave you fired a single senior executive? And by that, I do not mean a regional manager or branch manager. I am asking about the people who actually led your community banking division or your compliance division?
StumpfWe have made a change in our regional--to lead our regional bank.
WarrenI just said I am not asking about regional managers. I am not asking about branch managers. I am asking if you have fired senior management, the people who actually led community banking division, who oversaw this fraud, or the compliance division that was in charge of making sure that the bank complied with the law.
StumpfNo.
WarrenNo. OK. So you have not resigned. You have not returned a single nickel of your personal earnings. You have not fired a single senior executive. Instead, evidently your definition of "accountable" is to push the blame to your low-level employees who do not have the money for a fancy PR firm to defend themselves. It is gutless leadership.
[Hearing transcript, September 20, 2016, questioning by Sen. Warren.]
Eight rhymes with great
Warren then turned to the practice at the center of the scandal, and to where the number eight had come from.
WarrenIn your time as Chairman and CEO, Wells has been famous for cross-selling, which is pushing existing customers to open more accounts. Cross-selling is one of the main reasons that Wells has become the most valuable bank in the world.
WarrenBut you set the target at eight accounts. Every customer of Wells should have eight accounts with the bank. And that is not because you ran the numbers and found that the average customer needed eight banking accounts. It is because "eight rhymes with great." This was your rationale right there in your 2010 annual report.
WarrenCross-selling is not about helping customers get what they need. If it was, you would not have to squeeze your employees so hard to make it happen. No. Cross-selling is all about pumping up Wells' stock price, is it not?
StumpfNo. Cross-selling is shorthand for deepening relationships.
[Hearing transcript, September 20, 2016, questioning by Sen. Warren.]
Twelve earnings calls
Warren submitted the transcripts of twelve quarterly earnings calls from the three years the practice was running, then read from them.
WarrenThese are calls where you personally made your pitch to investors and analysts about why Wells Fargo is a great investment, and in all 12 of these calls, you personally cited Wells Fargo's success at cross-selling retail accounts as one of the main reasons to buy more stock in the company. Let me read you a few quotes that you had.
WarrenApril 2012: "We grew our retail banking cross-sell ratio to a record 5.98 products per household."
WarrenA year later, April 2013: "We achieved record retail banking cross-sell of 6.1 products per household."
WarrenApril 2014: "We achieved record retail banking cross-sell of 6.17 products per household."
WarrenThe ratio kept going up and up. And it did not matter whether customers used those accounts or not. And guess what? Wall Street loved it.
[Hearing transcript, September 20, 2016, questioning by Sen. Warren. The earnings call transcripts and analyst reports were entered into the record without objection.]
Two hundred million
WarrenSo when investors saw good cross-sell numbers--they did while this scam was going on--that was very good for you personally, was it not, Mr. Stumpf? Do you know how much money, how much value your stock holdings in Wells Fargo gained while this scam was underway?
StumpfWell, first of all, it was not a scam, and cross-selling is a way of deepening relationships.
WarrenWe have been through this, Mr. Stumpf. I asked you a very simple question. Do you know how much the value of your stock went up while this scam was going on?
WarrenDo you know how much it was?
StumpfIt is all in the public filing.
WarrenYou are right. It is all in the public records because I looked it up. While this scam was going on, you personally held an average of 6.75 million shares of Wells stock. The share price during this time period went up by about $30, which comes out to more than $200 million in gains, all for you personally, and thanks in part to those cross-sell numbers that you talked about on every one of those calls.
[Hearing transcript, September 20, 2016, questioning by Sen. Warren.]
The teller and the chairman
WarrenYou know, here is what really gets me about this, Mr. Stumpf: If one of your tellers took a handful of $20 bills out of the cash drawer, they would probably be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multi-million-dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich. This is about accountability. You should resign. You should give back the money that you took while this scam was going on, and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.
[Hearing transcript, September 20, 2016, questioning by Sen. Warren.]
Stumpf resigned as chairman and chief executive of Wells Fargo three weeks later, on October 12, 2016.