John Stumpf is the gift that keeps giving to bank reformers.
The embattled CEO of Wells Fargo put in another poor showing in the House Financial Services Committee today, as Stumpf largely reprised his performance from the Senate last week:
Asserting that he would “make it right” to all harmed customers, when the bank’s plans obviously fall well short
Attempting to doctor the record, as our retail banking expert Clive describes in an accompanying post today, by having employees trying to obtain ex post facto consent for credit cards opened in their name without their approval
Pinning the blame on low-level employees while depicting Wells as a stellar corporate citizen
Refusing to acknowledge harm to employees who were fired whistleblowing or for failing to meet sales targets that were unattainable by honest means
Having a conveniently thin knowledge of many practices in his bank
Committee chairman Jeb Hensarling gave a blistering opening statement, that “Millions were ripped off…Fraud is fraud, theft is theft, there’s no other ways to describe it,” and followed by listing laws that he believed Wells has broken. He also pointed out that employees had filed wrongful termination lawsuits as far back as 2009, describing dodgy sales methods, adding that it was “beyond credibility that somebody up the food chain didn’t order, condone or turn a blind eye to it.” He promised a full investigation, including more hearings, and other committee members urged him to call wronged customers and former employees. Ranking member Maxine Waters provided evidence of questionable sales activities in 2007 and 2008, as well as Fed sanctions in 2011. Later in the hearing, she called for the bank to be broken up.
Carolyn Maloney called out Stumpf for making his largest stock sale just as he got word of the scandal. From the Financial Times:
…she brandished documents showing a big sale of Wells stock by Mr Stumpf in October 2013 — right after the bank “was turned into a school for scoundrels” — and challenged the CEO to explain it…
Mr Stumpf denied that the sale of shares worth $13m — his biggest on the open market since becoming CEO — was related to the fake-account matter, and said that it was done with “proper approvals”
This looks bad. Stumpf later claimed he first learned of the fake accounts abuses in “summer-fall” of 2013.
The disconnect between Stumpf’s bland rendering of Wells’ corporate bromides and the Congressmens’ ire was more pronounced than at the Senate hearings. Stumpf not only kept claiming that he was “fully accountable,” but upped the ante saying he “led the bank with courage”.
One of my favorite moments was when Ed Perlmutter got a dim idea of what the bog standard retail banking model was about and realized he didn’t like it. He was really bothered by the words he heard Stumpf using: “stores,” “sales organization,” products”: “We treat banks differently than grocery stores” as in among other things, bail them out. He asked Stumpf why the bank had had sales targets at all. The response? Stumpf said he didn’t want branch employees to be passive. He wanted them to “have a conversation with our customers about where the are in their financial journey.”
Even though the Representatives were on average less adept at interrogation than their Senate counterparts, they hammered on new issues. Brad Sherman asked if consumers who had forced arbitration clauses who wanted their day in court would get one. Stupf tried to pass off the idea that having Wells pay for mediation was just as good but finally admitted, “no”. Nydia Velázquez asked if Wells would rehire employees who were fired for not meeting sales goals. Ed Royce called the sales goals a “mandate” and another representative (I believe Keith Ellison) went through the escalating warnings for employees who did not meet their sales targets. As with so many questions, Stumpf professed to be unfamiliar with them, leading Scott Garrett to say that his patter sounded like that of Enron and Arthur Andersen executives.
One set of overarching messages was the evidence of at best grossly inadequate or at worse corrupt and complicit management. Again and again, the Congressmen and women demanded how Stumpf could claim he hadn’t known about the fraud earlier and intervened more effectively. They depicted Stumpf as responsible for a diseased, predatory culture. Stumpf kept sunnily claiming that “We are a quality company that made some mistakes” and acted as if more staff training was a real remedy, as opposed to a liability shield for senior executives.
Intriguingly, another theme was how Wells had undermined trust in the system. If anything, the Republican members were more angry about this issue than the Democrats, with several Tea Party members upbraiding Stumpf for making the case for “the other side,” meaning fans of regulation. In keeping, Jim Himes, a Democrat, gave an impassioned statement about how what was at stake was not a narrow legal definition of harm, but “belief in the banking system, belief in the market..The system comes apart if people don’t have faith.” This is consistent with our early observation that the intense reaction to the Wells Fargo abuses was in part an instinctive reaction among the elites to the fact they are facing legitimacy crisis. At a minimum, they need to look capable of policing their own ranks.
It seems impossible for Wells Fargo’s board to keep Stumpf much longer. The scandal keeps growing. Wednesday, California Treasurer John Chiang announced yesterday that the state was suspending all business with the bank for a year. Yesterday, the Department of Justice and the Office of the Controller of the Currency settled with the bank over violations of the e Servicemembers Civil Relief Act for repossessing cars of active duty servicemen. Although Wells would normally shrug off the penalties, $4 million in restitution and $20 million in fines, abusing members of the military is deadly from a PR perspective. As Adam Levitin pointed out by e-mail, the board’s best move would be to turf out Stumpf and bring in Sheila Bair.
But as much as one part of me would like to be proven right with my estimate that Stumpf would be ousted shortly after the House hearings, another part would now like to see him stay on. The longer his Orwellian babblespeak is on display, the more it exposes the rotten core of corporate governance in America. Stumpf is at most different in degree, but not in kind, from what goes on in public companies at the top. The more that Stumpf demonstrates that the elites play by a different set of rules and how that fosters predatory conduct, the easier it becomes to do something about it.