By WSJ STAFF
Wells Fargo & Co. Chief Executive John Stumpf took quite a
beating when he appeared last week before a Senate committee. Now,
it's time for Round 2: He goes before the House Financial Services
Committee to talk about his bank's allegedly "widespread illegal"
sales practices Thursday.
We're chronciling the hearing as it unfolds, offering a
blow-by-blow account and some real-time analysis of the
proceedings.
11:11: 'There's so much blame to go around for this, it's
unbelievable'
Rep. Blaine Luetkemeyer (R., Mo.) didn't give Mr. Stumpf a pass,
but he also went hard on regulators for not attacking the issues at
Wells Fargo sooner, given that some of the issues came to light as
early as 2013. "Regulators need to be fined as well," he said.
"There's so much blame to go around for this, it's
unbelievable."
11:05: Stumpf flew commercial
Mr. Stumpf appears to have flown commercial to the hearings
today and last week. Rep. Sherman from California asked Mr. Stumpf
what airline he flew in on, possibly to catch that he came in on a
private plane. But Mr. Stumpf says he traveled on Virgin America
and United. While bank executives often fly private, executives
have come under fire for flying such jets to hearings in
Washington.
11:04: Will other big bank CEOs face the same grilling?
Now comes a call to haul the chiefs of the other big banks in
front of Congress to talk about the practice of cross-selling
additional products to existing customers.
Democrat Brad Sherman says that he wants to know if the
"cross-selling mania" at Wells Fargo also occurred at the likes of
Bank of America and Citigroup.
"I don't think you should be alone in this joyous experience,"
he says.
He also points out that Wells Fargo is attempting to resolve
these issues with customers through mediation instead of the court
system, an effort that he says will deny them "they're day in
court."
He ends by saying its time to break up big banks.
10:58: Did Wells Fargo have sales quotas or sales goals?
Mr. Stumpf says that Wells Fargo did not have sales quotas but
only goals.
At least some employees appear to have been under the impression
that there were hard quotas and that they could lose their jobs for
not meeting them.
In a December 1, 2014 anonymous entry on the website
Glassdoor.com, someone who claimed to have been working for Wells
Fargo for more than 5 years wrote:
"Cross Selling is the only focus now, firing employees who are
great at their job in every area that should matter but if the
cross selling results are not meeting the ever ridiculous quota
(which continues to rise) than you may not have a job next month.
Expectation for customers to say yes to cross selling, leaving you
with no real control of your job security. Stress!"
In his testimony, Mr. Stumpf said, "My understanding is that
people should not be terminated for not meeting sales goals."
The Glassdoor,com entry ends with this advice to management:
"Cross sell expectations are going to destroy the customers
experience after all tenured employees are fired. All that will be
left are employees that cross sell and could not resolve a true
complex issue."
10:57: Is the small business division free from sales abuse?
On the small business front: Stumpf doesn't exactly give
confidence that Wells Fargo's small business division is free from
sales abuse problems. When Rep. Nydia Velazquez (D-NY) asks point
blank whether any problems extended to that unit, Mr. Stumpf said
he'd have his staff get in touch with her staff. Rep. Velazquez
responded that she'd be writing to the U.S. Small Business
Administration to urge them to investigate the matter.
10:55: New incentive program by Jan. 1
Mr. Stumpf said the bank is rolling out a new incentive
compensation program by "the first of the year." The bank has made
tweaks to its incentive compensation program over the years as it
found out about the questionable sales tactics, but it didn't seem
to make enough of an impact given that the behavior continued.
10:51: McHenry: Stumpf is 'tone deaf'
As expected, both Republicans and Democrats are being very tough
on Mr. Stumpf, as was the case at last week's Senate hearing.
Republicans committee members have already suggested more
investigations, a potential split of the Chairman and CEO roles and
slammed Wells Fargo's corporate culture.
Patrick McHenry, the Republican vice chair of the committee,
repeatedly grilled Mr. Stumpf on at cultre. After Mr. Stumpf
responded that the culture at the bank was "strong," Mr. McHenry
hit back at him for being "tone deaf" and how he he didn't grasp
the impact a scandal like this could have on societal trust of the
banking system.
10:50: Mr. Stumpf is thanking everyone
Mr. Stumpf sure is polite: No matter how confrontational the
question, Mr. Stumpf is thanking each questioner on the House
Financial Services Committee, even those who have suggested he may
have been insider trading (Rep. Maloney) or just ethically corrupt
in general (Rep. McHenry). Can't tell yet whether viewers will
think its polite or disingenuous.
10:45: Stocks sales by Stumpf
Rep. Carolyn Maloney (D., NY) questioned Mr. Stumpf about the
sales of $13 million worth of Wells share by Mr. Stump that took
place on Oct. 30, 2013 - close to the timing that Mr. Stumpf said
he was made aware of the issues: late 2013.
"My question was did you dump the stock after you found out
about the fraudulent accounts," Ms. Maloney said. "Because it seems
the timing is very very suspicious and raises a very serious
question." Mr. Stumpf said he had "no views" about sales practices
related to the sale of the shares.
Mr. Stumpf also said that his sale received the "proper
approvals" and that he holds more than four times as many shares as
required.
10:41: Honing in on internal whistleblower reports
Members of Congress appear to be honing in on internal
whistleblower reports about the sales practices at Wells Fargo that
occurred a number of years ago. That's led Mr. Stumpf to provide
some new details on how and when executives and the board got
summaries of calls to ethics hotlines.
10:40: Stumpf maintains issues were 'not material'
Stumpf continues to maintain that the bank's problems were "not
material" enough to require disclosure before the $185 million
settlement. As recently as the bank's second-quarter report to the
SEC, which was filed Aug. 3, "the facts and circumstances, we
believe, were not material."
10:39: Question on separating chairman and CEO roles
Mr. Stumpf is asked about whether Wells should separate the
chairman and CEO roles. He holds both positions.
"I believe we have the right structure," he says, but adds that
he serves "at the will of the board."
A follow-up question elicits the news that some members of the
board heard "high-level" reports of potential sales issues in 2011.
In 2013, Mr. Stumpf said he realized there was a real "issue" in
the Southwestern U.S.
And in 2014, "we started to provide more information to more
committees of the board."
10:36: Fed found flaws in Wells Fargo's incentive pay and sales
quotas in 2011
Here's the Federal Reserve press release announcing the 2011
consent order and $85 million fine that is getting so much
attention this morning.
Some of the problems alleged by the Fed do indeed sound
familiar:
"The order also addresses separate allegations that Wells Fargo
Financial sales personnel falsified information about borrowers'
incomes to make it appear that the borrowers qualified for loans
when they would not have qualified based on their actual
incomes.
These practices were allegedly fostered by Wells Fargo
Financial's incentive compensation and sales quota programs and the
lack of adequate controls to manage the risks resulting from these
programs."
10:33: Aware earlier than 2013
Chairman Hensarling and Ranking Member Maxine Waters both
suggested Mr. Stumpf was aware of issues in the bank's sales
business earlier than late 2013, the period in which he said he was
made aware of such issues. Ms. Waters pointed out Mr. Stumpf
instructed an update in an employee manual for the community
banking division, reminding employees they needed to obtain
customer's consent before opening an account.
10:30: Warnings from 2008?
Ms. Waters is on the clock. She says that there's evidence that
employees called the company's ethics hotline as early as 2008 to
report "fraud." She's hitting the same point that Mr. Stumpf and
top executives should have understood the scope of the problem
faster, and acted to stop it.
"Mistakes are going to happen," Mr. Stumpf says, and it wasn't
until 2013 that he became aware that the problem had been
"growing."
10:27: 'Someone needs to be held accountable'
Rep. Hensarling says that "no one seems to be held accountable"
for the sales scandal at the bank. This echoes what many other
lawmakers have said in the wake of the large clawback of Mr.
Stumpf's pay: that the move was a step in the right direction but
more needs to be done.
"Someone needs to be held accountable," he concludes.
10:24: Specifics about fired managers
Under questioning from Mr. Hensarling, Mr. Stumpf said that "10%
or more" of the 5,300 employees fired over five years were branch
managers, the first time the bank has given more specifics about
the number of managers fired. He added that the bank is doing a
full review of "other control functions" in the company. That could
include people working in risk, compliance or legal, for
example.
10:16: Hensarling: I wish I didn't have a mortgage with Wells
Fargo
In concluding his opening remarks, chairman Jeb Hensarling
delivered perhaps his harshest condemnation of the bank so far.
"Mr. Stumpf, I regrettably have a mortgage with your bank. I
wish I didn't," Mr. Hensarling said. "If I was in the position to
pay it off I would because you have broken my trust and you have
broken the trust of millions of others. And it will be a long, long
time to earn that back."
This raises the possibility that the fall out from Wells Fargo's
troubles could extend further than trouble with regulators and
lawmakers to include customer exits. Yesterday, California's
Treasurer said the state was suspending some of the business it
does with the San Francisco based bank.
10:16: Stumpf is sworn in
Stumpf has been sworn in. He will read a version of his written
remarks. He starts by repeating that he is "deeply sorry" and
"fully accountable" for the sales practices. "We should have done
more sooner," he says.
He appears to be wearing a different, darker brace on his right
hand than the bandage he worse last week. The bank said he hurt his
hand playing with his grandchildren.
(END) Dow Jones Newswires
September 29, 2016 11:32 ET (15:32 GMT)
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