Wells Fargo Scandal Sees it Lose Title of U.S’ Biggest Bank

Journalist:
Justin OConnell @justinofconnell
September 17, 2016

Editor’s note: Article’s headline has been updated.

John Stumpf, “Mr. Clean” of American Banking who is known for the lack of controversy surrounding the bank he leads, is facing a major scandal. It’s led to calls for his resignation from Wells Fargo & Co.,  one of the U.S.’s big four banks.

Stumpf, while in charge of Wells Fargo, led the bank record profits. But, the San Francisco-based lender was made to pay $185 million to settle allegations that it opened $2 million credit card and other accounts for customers without informing them.

Stumpf, who became chairman in January 2010, became CEO in June 2007. He’s been a part of Wells Fargo’s board of directors since June 2006, and president since August 2005.

The 62-year-old Stumpf now must try to salvage the bank’s, and his, reputation. The investigation of Wells Fargo has led to Stumpf testifying next week in Washington.

“I’m prepared to go there and share our side, and how seriously we take this,” Stumpf told Bloomberg on Tuesday. Stumpf also told CNBC’s Jim Cramer “the best thing I can do right now is lead this company, and lead this company forward.”

Wells Fargo, the biggest US home lender, under Stumpf’s command, stayed away from derivatives and focused on Main Street mortgages and checking accounts.

Stumpf is celebrated by his peers in banking.

“He’s like Americana in the form of a large bank CEO,” Mike Mayo, a bank analyst at CLSA Ltd., told Bloomberg. “He’s the preeminent retail banker.”

Wells Fargo would force consumers opening checking accounts to buy a credit card, officials say. This got the bank in trouble with the US Consumer Financial Protection Bureau.

Employees “secretly opened unauthorized accounts to hit sales targets and receive bonuses,” CFPB Director Richard Cordray stated.

Claiming it had fired 5,300 employees for the practice, the bank has told U.S. call centers to stop cross-selling products.

“The regulators’ findings are consequential for a bank such as Wells Fargo, which historically has had strong customer satisfaction scores and a reputation for sound risk management,” Moody’s Investors Service wrote in a report this week. “We do expect some immediate damage to Wells Fargo’s reputation from this embarrassing episode.”

According to the Office of the Comptroller of the Currency, Well’s Fargo’s community bank group “failed to adequately oversee sales practices and failed to adequately test and monitor branch employee sales practices.”

U.S. Representative Maxine Waters, top-ranking Democrat on the House Financial Services Committee, called Stumpf to talk “his willingness to take full responsibility.”

Hillary Clinton then praised the CFPB, a consumer protection agency the 2010 Dodd-Frank Act put into place.

Wells Fargo’s stock fell 3.3 percent Tuesday, and it’s no longer the biggest U.S. bank. Its market value is now $236.9 billion, compared with $240.3 billion for New York-based JPMorgan.

Images from Shutterstock and Wells Fargo.

Last modified (UTC): September 21, 2016 13:50

Tags: wells fargo
Justin OConnell @justinofconnell

Justin is the founder of Cryptographic Asset