Elizabeth Warren is at it again. But this time, she gave Wells Fargo CEO John Stumpf the tongue lashing he deserved.
Wells Fargo CEO Scorched by Elizabeth Warren
Elizabeth Warren slammed Wells Fargo CEO for the scam his company ran on customers. Low-level employees got fired as executives kept their jobs & profited.
Recently Wells Fargo was fined for opening many customer accounts without their knowledge to meet company quotas. The New York Times reported it as follows.
For years, Wells Fargo employees secretly issued credit cards without a customer’s consent. They created fake email accounts to sign up customers for online banking services. They set up sham accounts that customers learned about only after they started accumulating fees. On Thursday, these illegal banking practices cost Wells Fargo $185 million in fines, including a $100 million penalty from the Consumer Financial Protection Bureau, the largest such penalty the agency has issued.
Federal banking regulators said the practices, which date back to 2011, reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the nation’s largest banks. The bank has fired at least 5,300 employees who were involved. In all, Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.
Some customers noticed the deception when they were charged unexpected fees, received credit or debit cards in the mail that they did not request, or started hearing from debt collectors about accounts they did not recognize. But most of the sham accounts went unnoticed, as employees would routinely close them shortly after opening them. Wells has agreed to refund about $2.6 million in fees that may have been inappropriately charged.
Elizabeth Warren put Wells Fargo CEO John Stumpf on the hot seat at a Senate Banking Committee hearing on Tuesday.
“I am not asking about regional managers,” Elizabeth Warren said. “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.”
After attempting to spin the answer, Warren pressed. He admitted that no senior executives were fired.
“So you haven’t resigned,” Elizabeth Warren said. “You haven’t returned a single nickel of your personal earnings. You haven’t fired a single senior executive. Instead, evidently, your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership. In 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. Wells measures cross-selling by the number of different accounts a customer has with Wells. Other big banks average fewer than three accounts per customer. But you set the target at eight accounts. Every customer of Wells should have eight accounts with the bank. And that’s not because you ran the numbers and found that the average customer needed eight banking accounts. It is because quote ‘Eight rhymes with great.’ This was your rationale right there in your 2010 Annual Report. Cross-selling isn’t about helping customers get what they need. If it were, you wouldn’t have to squeeze your employees so hard to make it happen. No, cross-selling is all about pumping up Wells stock price. Isn’t it?”
Wells Fargo CEO John Stumpf answered with an incredulous statement.
“Cross-selling is shorthand for deepening relationships,” Stumpf said. “We only do well …”
Warren stopped him in his track.
“You say no?” Warren said. “Here are the transcripts of twelve quarterly earnings calls that you participated in from 2012 to 2014. The three full years in which we know, the scam was going on. … These are calls where you personally made your pitch to investors and analysts about why Wells Fargo is a great investment. And in all twelve 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. April 2012, quote, ‘We grew our 2012 cross-sell ratio to a record 5.98 products per household.’ A year later, April 2013, quote, ‘We achieved record retail banking cross-sell of 6.1 products per household.’ April 2014, quote, ‘We achieved record retail banking cross-sell of 6.17 products per household.’ The ratio kept going up and up. And it didn’t matter whether customers used those accounts or not. And guess what. Wall Street loved it.”
Warren pointed out that when the Wells Fargo scam was going on it was personally profitable for Stumpf. The stock price grew by thirty dollars making him a profit of over $200 million. But Warren went further.
“Here is what really gets me, Mr. Stumpf,” she said. “If one of your tellers took a handful of twenty dollar 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 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 twelve-dollar 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. This just isn’t right.”
Warren went on to say that bank executives are never held accountable. They were not held accountable in 2008, and they are not being held accountable now. She said things would only change when they face jail time.
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