When 5,300 bank branch employees open fake deposit accounts for customers in order to hit sales quotas set by upper management, who ultimately is responsible? The employees, for opening accounts without customer permission? Middle management, for passing down unreasonable sales goals set by the bank's leading executives? Or the CEO himself?
These are the questions that are swirling in the wake of Wells Fargo's fake bank account scandal -- questions that Wells as a corporate entity has tried to sidestep by accepting responsibility for what went wrong, agreeing to pay $185 million in fines and planning to abolish sales targets on all retail banking products starting on January 1.
It has refrained from pointing fingers at specific executives. Nor does the bank appear prepared to dump the guy at the very top.
"I think the best thing I could do right now is lead this company, and lead this company forward," CEO John Stumpf said in a CNBC interview last week.
Not everyone agrees -- and the opinions seem to be divided between those on Wall Street and those who are closer to Main Street.
"If the head of the company is allowed to walk away from a scandal of this kind of company-defining scale, it can never again be the bank that 'make[s] it right by the customer every time,'" MarketWatch opinion writer Tim Mullaney wrote in a post calling for Stumpf's resignation. "This is of course a serious failure of management by Wells Fargo. If you demand impossible quotas, something will go wrong," said Bloomberg View columnist Matt Levine in a chiding article of his own.
Those working on Wall Street seem less willing to throw Stumpf under the bus. Smead Capital Management CEO Bill Smead is a Wells Fargo shareholder whose views on the Wells chief are perhaps best described as "cautiously bullish." Smead gives Stumpf credit for building Wells' capital markets business, winning the Wachovia deal and successfully integrating Wachovia into the Wells hierarchy. But he also has questions about what this scandal says about Wells' governance and controls.
“The guy is not a screw-up. He has done major positive things for the company," Smead said in a recent phone interview. "But this is a major screw-up... We don’t know how far the sales culture has corroded other policies, procedures and other corporate governance.”
CLSA analyst Mike Mayo is arguing that Wells should keep Stumpf as chief executive, but should perhaps give him a pay reduction and certainly claw back a $125 million retirement package given to the former head of community banking.
"Under the CEO, Wells has had superior revenues, returns, and risk, leading to the stock price performance -- up 27% versus down 40% for the Nasdaq banking index from 6/1/07-9/15/16 -- that ranks only second among the biggest bank CEOs," Mayo said in a research note Monday morning.
"It's extremely unlikely, in our opinion, that any evidence shows that the CEO wanted the unauthorized opening of two million accounts because these actions cost Wells estimated $5 million while it took place," he added, noting that the $5 million figure is produced by multiplying the two million fake accounts by one-fourth of the $15 an hour pay branch employees receives (in his view, it takes 15 minutes to create one fake account) and subtracting the $2.6 million in fees generated by the unauthorized accounts.
This math, Mayo says, "makes this a big contrast to incentives at the top before the financial crisis."
Other math, however, supports the case for cutting Stumpf's pay package (at the very least). An August report from the Institute for Policy Studies found that Stumpf receives more tax-deductible bonuses than any other CEO on Wall Street, having earned $155 million in tax-deductible performance pay between 2012 and 2015. During that same time, IPS reports, Wells received more than $10 billion in fines for banking misconduct.
Reporting was contributed by Antoine Gara.
