Stumpf appears set to remain in the job as the board investigates a sales-tactic scandal

By Emily Glazer and Rachel Louise Ensign 

Can $41 million in forfeited compensation buy John Stumpf job security at embattled Wells Fargo & Co.?

For now, there are no signs he is contemplating giving up his roles as chairman and chief executive over the bank's sales-tactics scandal, and Wells Fargo's board hasn't held formal discussions about the idea either, according to people familiar with the matter.

That is despite the extraordinary rebuke the board handed down Tuesday when it announced Mr. Stumpf had agreed to forgo all unvested equity awarded to him, worth $41 million; not take a 2016 bonus; take no salary during an independent board investigation; and recuse himself from all deliberations related to the sales issues.

Mr. Stumpf's position is far from secure. On Thursday, he will return to Capitol Hill for the second time in as many weeks, appearing before the House Financial Services Committee to explain the bank's allegedly widespread illegal tactics that led to as many as 2 million accounts to be opened with fictitious or unauthorized customer information.

Many senators who grilled Mr. Stumpf on the topic last week welcomed the unusual step of a high-profile CEO giving up two years worth of compensation to respond to their concerns. But a group of Democratic senators also demanded more answers, sending a letter to Mr. Stumpf Wednesday with 58 follow-up questions such as how the sales abuses developed and what customers who were harmed could do.

While San Francisco-based Wells Fargo's management and board didn't know how widespread the problems were until this year according to people familiar with the matter, the bank has fired 5,300 employees over five years related to the bad behavior. Now its board is turning to the role of senior executives such as Mr. Stumpf.

The internal investigation could be a major factor in Mr. Stumpf's future at the bank. It is expected to take a few months, but could wrap up by year-end, people familiar with the board said. Mr. Stumpf, who was named CEO in 2007, will likely stay on through that process, but the situation could change depending on the board's findings, these people said.

The 63-year-old executive's performance before the Senate Banking Committee a week ago was widely viewed as a failure, in part because he wasn't able to show any substantive steps by the bank or by its board following the scandal. He also deflected many of the toughest questions. At the House hearing, Mr. Stumpf will be able to point to the recent clawback action, but another subpar performance could influence the board's thinking.

In a message to employees Tuesday, Mr. Stumpf said he "should have acted sooner and more aggressively to correct weaknesses in our operations." He said he recommended to the board, and it approved, his forfeiting of about $41 million of stock awards, "reflecting years of performance dating back to 2013."

Wells Fargo released a statement late Tuesday saying "our management team will cooperate fully and is dedicated to strengthening our culture and taking strong actions to ensure this conduct does not happen again."

Some customers said Wednesday that they may not wait around. California Treasurer John Chiang said his office would stop doing some brokerage and underwriting business with Wells Fargo for one year. New York's Metropolitan Transportation Authority is holding up a routine review of Wells Fargo's application to underwrite MTA bond deals while it reviews recent developments, according to finance director Pat McCoy.

In a securities filing Wednesday, Wells Fargo said that federal, state and local government agencies including the Justice Department, state attorneys general and prosecutors' offices, and congressional committees, "have undertaken formal or informal inquiries, investigations or examinations" relating to the sales practices that led to a $185 million settlement and enforcement action earlier this month.

The bank said it has "responded and continues to respond" to the requests for information. A number of lawsuits have been filed by nongovernmental parties seeking damages or other remedies related to the sales practices, the bank added.

The Wall Street Journal reported earlier this month that U.S. Attorneys in the Southern District of New York and the Northern District of California had issued subpoenas to the bank on the matter. The district including Charlotte, N.C., where many Wells Fargo employees work, also has joined in, people familiar with the matter said.

The board's internal investigation may lead to further clawbacks of prior compensation awarded to Mr. Stumpf, former head of community banking Carrie Tolstedt or other executives. The board Tuesday said Ms. Tolstedt would forfeit $19 million in unvested equity compensation.

So far, the board's lead independent director Stephen Sanger, former chairman of General Mills Inc., has been leading the board's discussions, which don't include Mr. Stumpf, the people said. The board over the weekend held a long meeting at which management wasn't present in which the initial steps on clawbacks came together, they added.

The board decided against asking Timothy J. Sloan, Wells Fargo's president and chief operating officer, to forfeit any compensation because he's only been in that role for less than a year, people familiar with the discussions said. He also has spent most of his time in the bank's corporate and investment banking divisions, as opposed to the retail bank where the conduct in question took place, the people added.

In Wednesday's securities filing, the bank said Ms. Tolstedt agreed to not exercise her options until the board's independent investigation is completed. Those are worth roughly $35 million based on a $46 share price, according to an analysis by human resources consultancy Overture Group LLC. The board will decide whether those options would be forfeited at the conclusion of the investigation.

-- Heather Gillers and Aruna Viswanatha contributed to this article.

Write to Emily Glazer at emily.glazer@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com

 

(END) Dow Jones Newswires

September 29, 2016 02:47 ET (06:47 GMT)

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