Wells Fargo's new CEO faces immediate
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[October 13, 2016]
By Dan Freed
NEW YORK (Reuters) - Tim Sloan will not
have much time to prepare his pitch for Wall Street.
The newly installed chief executive of Wells Fargo & Co <WFC.N> will
present third-quarter results on Friday, less than 48 hours after
replacing John Stumpf at the helm of the bank.
Investors are seeking reassurance that Wells Fargo can rebuild its
reputation and retain profits while overhauling the hard-charging sales
culture at the heart of a scandal over unauthorized accounts.
Sloan's nearly 30 years with Wells, largely spent on the corporate and
institutional side of the bank, and his moderate temperament make him a
safe pair of hands.
But as chief operating officer of the bank since November 2015, he had
oversight over Wells' retail division, where employees opened up to 2
million accounts without customers' knowledge, some of them during his
tenure as COO.
Much of his success will depend on how he navigates the demands of Wall
Street for growing returns with the political and public clamor for
“The fact they have named him CEO indicates to me that he has at least
passed some litmus test about his part in all of this and indicates to
me that there was little or no part," said Nancy Bush, an analyst with
NAB Research, which owns Wells shares.
"I know Tim, he has vast experience in every part of Wells Fargo and
yes, I think he is the right man."
Wall Street is trying to get a handle on what a long list of probes and
lawsuits regarding the bank's opening of unauthorized customer accounts
will ultimately cost.
So far the tab has been relatively small: Wells agreed to a $190 million
settlement last month, representing less than 1 percent of its annual
earnings. But that deal itself led to a range of other inquiries the San
Francisco-based bank is now contending with.
Wells Fargo is expected to say how much money it has set aside for legal
costs it can reasonably predict when management discusses results on
Friday. At least nine separate regulators, prosecutors, enforcement
agencies and congressional committees appear to be looking into the
bank's actions, according to a Sept. 26 Bernstein Research report. That
comes in addition to private lawsuits from shareholders, customers and
"I don't think there will be a surprise to the downside in terms of the
legal cost. The surprise will be that it's more than anyone suspects
right now," said Michael Holland, president of Holland & Co, which
manages $5 billion worth of investments.
Wells' settlement on Sept. 8 with the Consumer Financial Protection
Bureau, Office of the Comptroller of the Currency and a Los Angeles
prosecutor revealed the bank had opened as many as 2 million accounts in
retail customers' names without their permission. The bank fired 5,300
employees for improper practices and is now working to retool
risk-management protocol as well as pay incentives and training for
Former employees have described a pressure-cooker sales culture inside
the bank where managers had browbeat staff into hitting aggressive daily
sales quotas, which in turn led some workers to create unauthorized
Khalid Taha, a former Wells Fargo personal banker who left the bank in
July after suing them over sales pressures, said Sloan did not represent
a new era.
"Wells Fargo’s problems go from top to bottom,” he said. “Sloan is part
of that problem. I can’t see him as a solution.”
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A Wells Fargo Bank is shown in Charlotte, North Carolina, U.S.,
September 26, 2016. REUTERS/Mike Blake
As government authorities examine Wells Fargo, it is likely they
will find abuses in other parts of the bank beyond retail customers,
said Harvey Pitt, founder of consulting firm Kalorama Partners and a
former chairman of the U.S. Securities and Exchange Commission.
"The damage to customers could be much more significant," said Pitt.
Earlier this month, Reuters reported a probe by U.S. Senator David
Vitter has found 10,000 small business customers were also victims
of improper practices.
A Wells Fargo spokesman did not respond to requests for comment.
It is difficult to estimate the total cost of the probes and
litigation Wells will face over the unauthorized accounts, analysts
said. Some matters could drag on for years before being resolved,
and there are a range of possible outcomes.
Even so, most analysts have cut profit forecasts for Wells Fargo,
citing fallout from the scandal. The average estimate for Wells
Fargo's 2017 net income is now $20.8 billion, down $300 million
since Sept. 7, according to Thomson Reuters data.
State and local municipalities including Illinois, California,
Seattle and Chicago have publicly cut ties with Wells. While some
analysts expect other government entities to make similar moves, the
impact on Wells Fargo’s revenues appears immaterial at this point.
Less than 1 percent of Wells Fargo revenue comes from working with
local governments, non-profit hospitals and universities, according
to a presentation the bank made to investors earlier this year.
The bank has also lost some retail customers, though Wells is still
opening more accounts than it is closing, senior executives said on
an internal call on Monday that was reported by the Wall Street
“It’s not business as usual at Wells Fargo. There’s an enormous
amount of work to be done to regain the public’s trust,” said Thomas
Russo, managing member at Gardner, Russo & Gardner, a top 50
(Additional reporting by Elizabeth Dilts.; Editing by Lauren Tara
LaCapra, Meredith Mazzilli and Bernard Orr)
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