US bank Wells Fargo not only releases its March quarter results on Thursday, but it is also due to produce a report tonight our time on last year’s scandal which saw the bank hit hard by senior executives forcing low level staffers to sign up millions of customers without their knowledge.
The fall out from the scandal saw the bank sack its long time CEO and several other senior executives in the retail baking area, face a myriad legal suits from former staffers unfairly blamed and sacked over the scandal, and pay a $US190 million fine to a Federal regulator.
Tonight’s report is expected to detail what went wrong at America’s fourth-largest bank (and one of its most profitable). On Friday a key shareholder advisory group called for a clean out of the bank’s board at a its annual meeting later this month.
Reuters reported at the weekend that the bank regulator (or examiner) with oversight of Wells Fargo for much of the past decade, when the scandal started, has been removed and he has lost his supervisory role. This has happened in the past fortnight, according to the Reuters report.
The examiner at the Office of the Comptroller of Currency (OCC), Bradley Linskens, would appear the first ‘official’ victim of the scandal, joining those Wells executives, led by former CEO, John Stumpf who have lost their jobs or power or been demoted. Liskens started overseeing (as part of a team) Wells Fargo in 2006 and progressively became more senior and ended up in charge of the regulation of Well Fargo.
In the wake of the emergence of the scandal, the OCC ordered its own probe and the Liskens’ demotion seems to have resulted from that, according to Reuters and other media reports.
After falling more than 5% in late September, Wells Fargo shares joined other bank shares in rallying hard in the wake of the Trump election, hitting a year high of $US59.73 on March 1.
But since then the Trump factor has faded and the bank’s shares are down 8% or so from that high, closing at $US54.84, still 10% up on the $50.47 the shares were trading at last September before the accounts scandal erupted.
One factor that has helped Wells has been the steady support form its biggest shareholder, Warren Buffett’s Berkshire Hathaway (and Buffett himself owns around 2 million shares in his own name). That support, more than any action by the bank, has saved it from a bigger pounding by nervy investors.
In September, Wells Fargo reached that $US190 million settlement with the OCC and other regulators over the way it opened millions of accounts in customers’ names without their permission. At the time, the bank said as many as 2 million accounts were affected, but has since said the number might be larger. Tonight’s report will hopefully give more details.
The report is the result of a seven-month investigation by Wells Fargo’s board of directors into how and why the sales abuses happened.
Thousands of employees were dismissed over the matter, and several have publicly said they opened the fake accounts to hit aggressive sales targets set by managers. Wells Fargo now faces investigations from other government agencies including the Department of Justice, which is looking at whether any laws were broken.
Last Monday the US Occupational Safety and Health Administration ruled that Wells Fargo had fired a former manager after he reported potential fraud to the bank’s ethics hotline. The agency ordered the bank to rehire the manager and pay $5.4 million in back pay, damages and legal costs. That got Wells Fargo all upset and it says it will challenge OSHA’s decision.
And a powerful shareholder advisory group has turned both barrels on the Wells Fargo board, urging in a report released on Friday, that shareholders in the bank vote against all but three board meetings at the Aril 25 annual meeting.
Institutional Shareholder Services said that Wells board members failed to properly oversee the bank and could have done more to prevent “unsound retail banking sales practices” and recommended voting against 12 of the bank’s 15 board members, including Chairman Stephen Sanger.
It recommended voting for the remaining three members, all of whom joined the board after the bank’s unauthorized accounts scandal came to light in September of last year. That includes Timothy Sloan, who joined the board when he was named chief executive in October, and directors Karen Peetz and Ronald Sargent, who joined the board in this February.
Naturally Wells Fargo’s board says ISS is wrong and claims it’s recommendations fail to take account of all the actions the bank and board have taken in the wake of the scandal in firing several senior managers, cancelling pay and bonuses for some executives and scrapping the onerous sales goals that critics blamed for pushing workers to open new accounts without customer approval.
Tonight’s report will therefore be crucial in fighting the ISS recommendations (which carry a lot of weight among big pension funds, especially those based in California which are reportedly upset at the actions and poor oversight of the board of the San Francisco based bank.
