WFC Wells Fargo and Company

   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. Follow the latest coverage here: http://blogs.wsj.com/moneybeat/2016/09/29/wells-fargo-ceo-faces-latest-congressional-grilling-live-analysis/

2:08: Are we there yet?

Mr. Stumpf has at least twice declined to say how long the board's internal investigation will take. Yesterday's Wall Street Journal noted that the internal investigation is expected to take a few months, but could wrap up by year-end, people familiar with the board said.

2:03: Stumpf has spoken with Buffett

In response to a question from Rep. French Hill of Arkansas, Mr. Stumpf says he has had one conversation with Mr. Buffett recently. As we noted previously, Mr. Buffett's Berkshire Hathaway is by far Wells Fargo's largest shareholder, and Mr. Buffett has said he won't be speaking publicly about this issue for a few more weeks.

Mr. French reads to Mr. Stumpf an excerpt from some famous Congressional testimony by Mr. Buffett from 1991 after he stepped in as chairman of a floundering Salomon Brothers. He told legislators that his message to employees then was: "Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.

Mr. Stumpf responds: "I agree with that."

Mr. Buffett has not responded to our requests for comment on Wells Fargo's issues in recent days.

1:54: Maxine Waters calls for Wells Fargo break-up

Maxine Waters joined some of her House Financial Services colleagues in calling for the break-up of Wells Fargo.

While others have called for the break-up earlier, Rep. Waters is the highest ranking House member to have done so. She is the ranking Democratic member of the Financial Services committee.

She not only called for the break-up but seemed to indicate she would take action to bring it about.

"I'm moving forward to break-up Wells Fargo," she said.

Of course, her ability to do so is limited as her party doesn't control the House and is not considered likely to take control this fall.

1:48 - Congressman wants Stumpf to think about what he's done

Democrat Denny Heck of Washington says's he's not going to ask for Mr. Stumpf's resignation. But then he reads back some of Mr. Stumpf's words today, including: "I'm going to make it right."

He tells Mr. Stumpf, essentially, to sit in a quiet room and think about what he's done… and how he's going to make it right.

1:45 Time to split the CEO and board chairs at the big banks

Aaron Back at Heard on the Street finds a sliver lining in the Wells Fargo scandal.

One positive legacy of the Wells Fargo sales fiasco may be that it resurrects the issue of separating the roles of chief executive and board chairman at major banks.

At Wells Fargo, John Stumpf holds both roles. Among the nation's six biggest banks, only Citigroup currently separates those positions. Many, like J.P. Morgan Chase, have successfully fended off shareholder proposals to split the roles.

1:41: Wells Fargo shares take a beating

Wells Fargo shares are taking a beating alongside a broader market selloff. The stock traded as low as $44.34 on Thursday, surpassing recent lows during market selloffs in June and February. That's the lowest since early 2014.

It's currently off 1.7% to $44.52.

1:39: Stumpf's clawback is 3rd largest

Francine McKenna at MarketWatch points out that John Stump's $41 million clawback is the third largest ever.

A MarketWatch analysis of forfeitures and so-called clawbacks of compensation by the Securities and Exchange Commission or by companies themselves shows that the Wells Fargo WFC, forced forfeiture of $41 million in future compensation by Chairman and CEO John Stumpf is neither the biggest nor the toughest ever.

1:32: Stumpf suggested his own clawback

Mr. Stumpf says he recommended his own clawback to Wells Fargo's board.

The bank, appearing to respond to last week's Congressional criticism, announced earlier this week that it was clawing back a big chunk of Mr. Stumpf's pay.

Mr. Stumpf has agreed to forgo all unvested equity awarded to him, worth $41 million; not take a bonus during 2016; take no salary during an independent investigation by the board; and recuse himself from all deliberations related to the bank's sales-tactics scandal.

He tells the committee that he recommended that clawback to the board after last week's Senate hearing. At that hearing, he said he didn't want to prejudice the board's deliberations on taking back his pay, but says he later changed his mind.

"It's what I thought was right," he says. But he also says the board could have to taken back more of his pay if they'd wanted.

The board also decided that another Wells Fargo executive named Carrie Tolstedt-who oversaw retail banking during bad behavior there-will forfeit unvested equity awards valued at $19 million. Mr. Stumpf said he did not weigh in on her clawback, but that her supervisor did.

1:18: John Stumpf: Bank teller?

John Stumpf just got asked if he's ever gone "undercover boss" and acted as a teller.

"I'm not trained or permitted to do that," he said.

He did say that he's visited around 1,000 branches over the last five years.

1:18: More on the credit score issue

Rep. Andy Barr (R, Ky.) is also addressing the credit-score concern that's been raised repeatedly.

He said he's concerned that people's credit scores were hurt through no fault of their own and said the bank's unauthorized opening of checking accounts may have resulted in overdraft fees and other charges that "could have very well damaged their credit scores."

1:14: Stumpf's compensation

Mr. Stumpf has made a lot of money over the years after hitting performance goals for his equity grants. He collected $142.49 million between 2011 and 2015 from performance-based stock awards, concluded an analysis by Equilar Inc., a consulting firm that tracks executive-pay practices.

During that period, the CEO's annual bonus totaled $19.1 million.

Ms. Tolstedt, the Wells Fargo executive who retired this week, collected $55.5 million from equity linked to performance plus $6.6 million in bonuses between 2011 and 2015, Equilar reported.

1:07: 'Trust and the faith and the belief in the system'

Rep. Jim Himes, D-Conn., urged Mr. Stumpf not to take refuge in the idea that Wells Fargo's problems were "not material." That determination is about much more than a legal definition, he said - "it's about the trust and the faith and the belief in the system" that the bank's actions have jeopardized. Without trust, he said, a dollar bill is just a piece of paper "with green ink on it."

Mr. Stumpf agreed that "trust is the absolute critical element, and we have a lot of work to do on that."

1:05: Room is emptying out

As the hearing gets into its third hour, many of the top members have left the room. Chairman Hensarling has passed the gavel to Rep. Randy Neugebauer, a subcommittee chairman. Presumably many are eager to leave to get home to focus on their re-election campaigns. Indeed, one congressman explicitly said he had a plane to catch.

12:48: Stumpf on message

No one is going to accuse Mr. Stumpf of being "low-energy."

After nearly three hours of often harsh criticism and pointed questions from Congress, he isn't showing any signs of weariness.

Lawmakers today have been almost uniformly hostile to Mr. Stumpf, but he has remained calm so far even as some have called for him to be fired and criminally investigated. He's largely stayed on message, repeatedly apologizing.

12:46: Concern about credit scores

Rep. Marlin Stutzman (R. Ind.) earlier expressed concern about Wells Fargo customers whose credit scores were dinged as a result of the bank opening unauthorized accounts in their name, echoing concerns raised in last week's Senate Banking Committee hearing. He referenced the roughly two million accounts that were opened, to which Mr. Stumpf suggested the impact would have been isolated to the customers who had the some 565,000 credit cards issued in their name. Mr. Stumpf has said several times during today's hearing that fewer than 25% of the card customers that have been contacted by the bank so far said that they didn't apply or couldn't recall applying for the cards.

12:42: A lot of members of Congress are Wells Fargo customers

One clear thing from this hearing is that many members of Congress are Wells Fargo customers. That makes sense since Wells Fargo has one of the most extensive branch networks of any U.S. bank and has a branch just a few blocks away from the Capitol building in DC. But that personal experience with the bank seems to be fueling their ire. Rep. Stutzman, a customer, complained a few minutes ago about Wells Fargo's website.

12:40: Stumpf on Dodd-Frank and financial regulation

Rep. Gwen Moore's final question was whether John Stumpf has said that Dodd-Frank "over-regulates" banks. He denied having said that.

She was most likely referring to some remarks Mr. Stumpf made at the national Press Club in September of 2014. In those remarks Stumpf offered qualified criticism and praise of post-financial crisis regulation.

"I think first of all, I'm in favor of good regulation. I want good, honorable competitors doing the right thing. That helps us. But I want to make sure we don't go overboard," Mr. Stumpf said.

He went on to note how much new regulation had been created.

"Now, where there is a disagreement is has enough been done to deal with this issue through Dodd-Frank and other things? And sometimes, one forgets how much has been done. So if I look back to 2008, we now have almost 14,000 pages of new rules written," he said.

He did, however, go on to defend the regulations. "Any one of these things I just talked about, whether it be enhanced requirements, different regulators, living wills, capital liquidity, all make sense in the singular. And in the aggregate, it's a large load. And my answer to critics would be give this stuff a chance to work," Mr. Stumpf said.

That was immediately qualified by a warning about over-regulation: "And by the way, there is an economic price, the economy does pay, if you are going to have over-regulation and too much capital and too much liquidity on the sidelines."

12:40: 'You can't fully regulate bad actors'

Mick Mulvaney of South Carolina follows on the comments from fellow Republican Frank Lucas, saying that the bank's actions "essentially validate" critics of the banking industry from the other side of the aisle. He tells the Democrats in the room that he knows they'll use this episode to "bang the drum for more regulation." Wells Fargo has damaged "the market," he says.

But he counters with this: New regulations were in place while some of this activity was taking place. "You can't fully regulate bad actors," he says.

To Wells Fargo's CEO, he says: "Ya'all were rotten." Mr. Stumpf "wouldn't even be here if I was on the board of that company."

12:30: Not everyone is all that upset with Wells Fargo

It seems not everyone is all that upset with Mr. Stumpf. "I'm so happy you drained the swamp" of the 5,300 "low-level employees," said Rep. Gwen Moore (D., Wisc.). She also said she was "sorry" for Mr. Stump's "loss of $41 million" that was clawed back. She spent some of her time reminiscing about her memories of Wells Fargo's old marketing campaign as well. "I remember Wells Fargo in the old wagon train days," she said. Wells Fargo is "one of the greatest companies this country has ever known," she added.

Towards the end Ms. Moore asked about what relief her constituents would receive and asked what remedies there would be for any whistleblowers who may have lost their jobs," but not the 5300 "bad ones."

12:24: More information on when Stumpf knew of the problems

One of the key questions that lawmakers are hot on was when exactly Mr. Stumpf learned about the problem in the bank's retail business.

At the Senate hearing, Mr. Stumpf had left the timing vague by simply saying it was "later in 2013." Answering a question from Rep. Michael Fitzpatrick (R., Penn.), Mr. Stumpf today said he learned about it in the "fall time frame" of 2013, and before the Los Angeles Times carried a detailed report on the case in December. That article, Mr. Stump said "didn't surprise me because I had heard the acceleration of problems" in certain markets.

Lawmakers had wondered previously whether Mr. Stumpf had been left in the dark until the newspaper article emerged.

12:14: Were the fired Wells employees victims too?

While Wells Fargo's actions have united Democrats and Republicans on two financial-services committees this month, there's some divide over the 5,300 employees who got fired for cross-selling abuses such as moving customers' money to new accounts without their knowledge.

Mr. Stumpf has consistently excoriated these lower level employees and mid-level managers, saying they have no place at the company he runs. But others suggest they may be more like victims of an aggressive sales culture run amok.

"These were people trying to make a living," said Rep. Al Green (D-Texas). "These people deserve a fair day, not just an exit from your company… They deserve an opportunity to be heard."

12:11: Elizabeth Warren just became a verb

In a nod to how contentious Mr. Stumpf's appearances have been on the Hill these past two weeks, Rep. Emanuel Cleaver (D., Mo.) used a quieter, calmer tone when he asked his questions. "I'm not going to Warren you," he said, referring to the blistering exchange Mr. Stumpf had with Sen. Elizabeth Warren last week.

12:09: Other banks have embraced cross selling

A major question since the Wells Fargo penalty earlier this month is whether other banks will get penalized for similar practices. Some lawmakers have mentioned this in today's hearing. While Wells Fargo has been seen as one of the best banks at cross-selling, earlier this month we wrote about how other banks have embraced the practice more in recent years.

When Mr. Stumpf was asked at the hearing whether other banks cross-sold he said "I don't know their situations."

12:07: Buffett report denied on CNBC

As the hearing is ongoing, CNBC's Becky Quick is reporting that Warren Buffett's office denied an earlier news report that he'd been sounding off on Wells Fargo to the bank's board.

Mr. Buffett's Berkshire Hathaway is by far the largest shareholder in the bank, but has not spoken publicly about these sales issues. He's said he won't speak up until November.

Investor Douglas Kass of Seabreeze Partners, who has at times said he is selling shares of Berkshire short, wrote in a blog post that Mr. Buffett had expressed dissatisfaction to the bank's board but committed to remaining a shareholder. The denial of the report was broad, but Ms. Quick said she interpreted it to mean Mr. Buffett had not yet weighed in with the board.

12:03: Wells Fargo hearing sending chills down Wall Street spines

John Stumpf is pretty well-liked by top bankers, including some of the senior executives at rival giant banks. But they can't like what they are hearing today.

Several House members have called for a broader investigation that would bring in other banking chiefs to testify to the committee. Despite the fact that they may say they "welcome to opportunity to testify" before Congress, most would prefer to avoid it.

"This is sending chills down a lot of spines on Wall Street," one senior banker just told me over email.

11:56: Scott to Stumpf: 'You should be downright ashamed of yourself'

One good example of the pitchfork attack on Mr. Stumpf came from David Scott, a Democrat from Georgia. Here is what he said.

"You should be downright ashamed of yourself. You should apologize, right now, if you have any strain of respect for the people of the United States, for the customers that you have defrauded with this, for the rancid example that you are setting, the damage being done to the entire banking industry, because you know what? All of this cross selling, you have caused an extraordinary spot light on" the entire banking industry.

Mr. Scott ended his session with this question: "Do you think what you did was criminal?" Mr. Stumpf said he led the bank with "courage" and didn't break ethics.

11:52: Legal scrutiny is far from over

Beyond lawmakers' bluster, the most important theme of the hearing so far seems to be that Wells Fargo is far from through with its legal scrutiny of the accounts in question. Reps. have proposed at least eight laws that Wells Fargo may allegedly be in violation of.

Among them: the Truth in Savings Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Securities Act of 1933, the Securities and Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002.

They also gave new details of their own intensifying investigation of the accounts.

(END) Dow Jones Newswires

September 29, 2016 14:28 ET (18:28 GMT)

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