Ron Orol writes in The Street:
A report on Wells Fargo’s (WFC) fake-accounts scandal commissioned by the bank’s independent directors is far less critical of the company’s board than two studies issued last week by influential shareholder advisory firms. Instead, the 113-page analysis released Monday of how employees working to meet the San Francisco-based bank’s ambitious sales targets created more than 2 million unauthorized credit card and savings accounts over a five-year period lays much of the blame with former CEO John Stumpf and former community banking chief Carrie Tolstedt.
According to the report board “members believe they were misinformed” (note use of the passive voice, a telling indicator of a failure to accept responsibility). ISS sees it differently:
A report days earlier from Institutional Shareholder Services, the most influential shareholder advisory firm in the U.S., was less forgiving of the board. The firm recommended that investors vote against 12 of Wells Fargo’s 15 directors, including the four members who oversaw the investigation.
Members of two board subcommittees “failed over a number of years” to provide sufficient risk oversight at the scandal-plagued lender, the ISS report said, and the board overall failed to implement an “effective risk management oversight process in a timely way” that could have spared the bank’s reputation.
In our view, the compensation plan alone, rewarding the number of transactions instead of the quality of transactions, is sufficient reason to replace the entire board.
Source: Wells Fargo Accounts Probe Lets Board Off Much Easier Than Proxy Firms – TheStreet
Citigroup Inc. will pay $18 million to settle Securities and Exchange Commission allegations that it overbilled investment advisory clients and lost client contracts…The SEC alleges that at least 60,000 clients were overcharged about $18 million in fees because Citigroup charged clients higher rates than the ones that were negotiated. The bank allegedly didn’t confirm that proper billing rates were entered into its computer systems over a 15-year period from 2000 to 2015.The regulator also says that Citigroup allegedly lost contracts for 83,000 advisory accounts opened between 1990 and 2012, and therefore couldn’t check whether clients were being billed at the negotiated rates.
Source: Citigroup to Pay $18 Million to Settle Charges It Overbilled Clients – WSJ
Vying for lucrative deals in China, JPMorgan Chase deployed all the usual wining-and-dining tactics that big banks use to woo clients. JPMorgan, federal authorities now say, also had ways of sweetening the deal that crossed a legal line.
Federal prosecutors and regulators announced on Thursday a settlement of roughly $264 million with the bank and its Hong Kong subsidiary, accusing them of a vast foreign bribery scheme that may have spread to a number of Wall Street banks.
The case centered on JPMorgan’s hiring practices in China, where it hired the children of Chinese leaders to win business in the fast-growing nation. Some of the well-connected candidates were unqualified, the authorities said, and often “performed ancillary work” — telltale signs of hidden bribery.The case could lay the groundwork for the authorities to pursue penalties against other big banks as well. Banks including HSBC, Goldman Sachs and Deutsche Bank have hinted that they face investigations into their hiring practices in China as part of a larger sweep by the agency that began in 2013.
Source: JPMorgan Chase to Pay $264 Million to Settle Foreign Bribery Case – The New York Times
Jon Lukomnik has some good advice for Wells Fargo.
Wells Fargo has been knocked off its pedestal, but it is imperative that the company move forward and put this episode behind it.
His recommendations include replacing the CEO and CFO (we would add the head of HR who designed or approved the compensation that incentivized the creation of the fraudulent accounts) and installing a board-level independent monitor.
Source: Five Steps for Wells Fargo to Rebound from Scandal | Bank Think
Wells Fargo didn’t disclose anything publicly about its “cross-selling” abuses or looming settlement with regulators before the pact was announced Sept. 8—including in its second-quarter Securities and Exchange Commission filing weeks earlier, on Aug. 3. Three Democratic senators who grilled the bank’s chief executive last week now have asked the SEC to investigate whether Wells Fargo misled investors by failing to disclose the issue sooner.
While the bank’s management had known since 2013 that some employees had created deposit and credit-card accounts for customers without their knowledge, the accounts were a tiny portion of Wells Fargo’s business. The settlement, which included a $185 million fine, was less than 1% of last year’s earnings. The matter was “not a material event,” Chief Executive John Stumpf told a Senate panel last week.
That is true in terms of the bank’s income statement. Not so its reputation or share price. The bank and Mr. Stumpf have faced a political and public furor and the stock has lost nearly 10% since the settlement, or about $23 billion.
Source: To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – WSJ
Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the San Francisco bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts.The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.
On Tuesday alone, he said, he had pulled Wells Fargo off two large municipal bond deals.
“How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.
Source: California Suspends Ties With Wells Fargo – The New York Times
Wells Fargo announced on Tuesday that it would claw back compensation valued at $41 million from its embattled chairman and chief executive, John G. Stumpf, as the financial consequences of the scandal over illegally created sham accounts at the bank reached the executive suite.The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation. Many large companies have adopted clawback provisions at the urging of regulators and shareholder advocates, but boards have been hesitant to invoke them.
And it came one week after a blistering Senate hearing in which lawmakers criticized the company and its board for not holding its leaders financially accountable for the scandal.
Carrie Tolstedt, who led the Wells Fargo community banking division now engulfed in scandal, will surrender stock grants valued at about $19 million, the board said as it announced an investigation into the company’s practices.
Source: Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal – NYTimes.com
Wells Fargo chief executive John Stumpf will forfeit $41m (£31.5m) in bonuses as the bank tries to stem a scandal over its sales practices.The bank has launched an investigation how more than two million deposit and credit card accounts were opened without customers’ permission.The bank said Mr Stumpf would not receive a salary during the inquiry.The former head of retail operations, Carrie Tolstedt, will forfeit $19m of bonuses and left without a payoff.
The announcement comes ahead of Mr Stump’s appearance before the House Financial Services Committee, scheduled for Thursday, where he is expected to face another tough questioning similar to his appearance before the Senate Banking Committee last week.
Source: Wells Fargo chief forfeits $41m amid corruption probe – BBC News
The New York Times reports that Wells Fargo CEO John Stumpf plans to take “full responsibility” for the massive fraud at the bank, though it is hard to imagine what that means unless he plans to resign and/or contribute some of his pay to the $185 million settlement. He should announce changes to the board as well, though we do not expect that.
At the WSJ, Andrew Ackerman writes:
While the agencies haven’t prosecuted any Wells Fargo employees, it’s premature to conclude individuals won’t eventually face federal charges. Individual accountability is typically part of follow-on actions brought by civil bank regulators. Meanwhile, the Justice Department is in the early stages of its own investigations, The Wall Street Journal reported last week.
Still, the widespread—and sometimes laudatory—attention the Wells Fargo enforcement case is receiving seems at odds with what the settlement actually contains.
Compensation for Stumpf and the now-departed executive who oversaw the fraudulent transactions.