Senators question whether Wells Fargo CEO is the right person to lead bank's turnaround
At a Senate Banking Committee hearing Tuesday, Wells Fargo & Co. Chief Executive Timothy Sloan faced pointed questions about his ability to lead a turnaround of the bank's culture — and whether the steadily growing list of new disclosures from the bank would ever end.
The hearing was held roughly one year after the San Francisco bank agreed in September 2016 to pay $185 million to regulators for creating millions of checking, savings and other accounts without customer permission.
Senators grilled Sloan about the reforms the bank said it has put in place and whether the changes would be enough.
He was specifically questioned about the bank's commitment to settle disputes with customers over the unauthorized accounts in court, rather than forced arbitration. The bank, like many financial institutions, requires customers to give up their right to sue when they sign up for personal accounts and other services.
Sen. Chris Van Hollen, D-Md., cited a current court case in Utah over the unauthorized accounts in which he claimed attorneys for the bank took the position that customers were required to enter into arbitration.
"If that is true, that directly contradicts your testimony," Van Hollen said.
Sloan said he was unaware of the bank's position in the case but promised he would look into it.
Sloan offered a mea culpa of sorts when asked by Sen. Brian Schatz, D-Hawaii, if it was fair that he got a promotion and bank board members still made money after the accounts scandal.
"I've taken responsibility for mistakes made at the company," Sloan said. "I'm taking action in my role as CEO to make Wells Fargo a better bank than it was a year ago."
Sloan did say that the bank's business has been affected since the accounts scandal became public, though employee turnover at Wells Fargo is down to its lowest point in 4 1/2 years.
The bank reported last year it fired 5,300 employees for violations of the company's sales practices. The bank has since rehired 1,780 employees "who left the bank during those years," according to a transcript of Sloan's prepared remarks.
"We're not growing as fast as we were prior to last September, but we're on a good trajectory," he said. "And I think that's because we have taken responsibility."
Sen. Elizabeth Warren, D-Mass., brought a large black binder to the hearing. It contained transcripts of investor calls starting in 2011, when Sloan, then the chief financial officer, "aggressively promoted Wells Fargo's ability to open new accounts," she said.
"I've read through them, and on these calls, no one — not even John Stumpf, who was the CEO at the time — bragged more about Wells Fargo's ability and commitment to open new accounts for existing customers," she said.
Senator Warren making a great point about how often Tim Sloan hyped cross selling.. she's dead right. I was on those calls— Jim Cramer (@jimcramer) October 3, 2017
Warren also brought up the 2013 Los Angeles Times investigation that first detailed the pressure-cooker sales culture at Wells Fargo, and noted that Sloan was interviewed for the report.
She read back his quote to him — "I'm not aware of any overbearing sales culture" — and asked if he launched an investigation into the issue either after The Times interview or after the story laying out evidence of the scandal was published.
Sloan said The Times did not provide him with documentation, to which Warren responded, "So I take that as a no."
"At best, you were incompetent. At worst, you were complicit," she said later in the hearing. "Either way, you should be fired."
In response to similar questions from Sen. Heidi Heitkamp, D-N.D., Sloan reiterated that the newspaper had not provided him with documentation. But he said that when an internal review that same year found problems in the Community Banking division, the matter was elevated to the bank's senior leadership team.
However, Heitkamp also expressed doubt that Sloan was the person to transform the bank's practices, noting he was unable to answer several questions posed by senators. "I think anyone with an open mind would question whether we would see a culture change," she said.
Earlier, Sen. Sherrod Brown of Ohio, the committee's ranking Democrat, brought up that the bank has found and disclosed a number of other instances in which customers were harmed since Wells Fargo reached its $185 million settlement with regulators, including the Consumer Financial Protection Bureau, as well as the Los Angeles city attorney's office.
He specifically noted the bank's disclosure in July that it would pay $80 million in refunds to hundreds of thousands of customers who were forced to pay for auto insurance policies they didn't need.
"The board chose to limit the scope of the review to the community bank," he said at the hearing. "It should have known or should have wanted to know that other problems" existed in other divisions.
Alluding to the recent data breach at credit reporting giant Equifax, Brown said, "It's no wonder the public doesn't trust our financial system."
Other problems that have cropped up at Wells Fargo over the last year include allegations the bank improperly changed the terms of mortgage loans for bankrupt borrowers, signed up customers for unauthorized life insurance policies and overcharged small businesses for credit- and debit-card processing services.
Sloan, though, said in his opening remarks that the company was "a better bank today than it was a year ago," and pledged it would improve more over the next year.
He then listed a number of reforms the bank has undertaken, including the elimination of product sales goals for retail bankers and the adoption of a new employee incentive program based on customer service performance.
Wells Fargo has admitted that it created as many as 2.1 million accounts in customers' names without their knowledge or authorization. A recent expanded audit showed that the estimated number of unauthorized accounts could be as high as 3.5 million. It also has agreed to settle several class-action lawsuits for $142 million.
Sloan took over the bank after the scandal forced former CEO Stumpf to step down in October of last year.