'Best banker in America'
blamed for Wells Fargo scandal
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[April 10, 2017]
By Carmel Crimmins
(Reuters) -
An
out-of-control sales culture, a defensive boss obsessed with stamping
out negative views about her division and a group chief executive who
called her the "the best banker in America" were to blame for Wells
Fargo & Co's devastating sales scandal, an internal investigation found.
The probe into how the San Francisco-based bank could have allowed
abusive sales practices to fester for years at its branch network laid
most of the blame on the former head of the retail division, Carrie
Tolstedt, and some of her management team, in a report released to media
on Monday.
In the report, which was carried out by the bank's chairman Stephan
Sanger and three other independent directors, Tolstedt is blamed for
ignoring the systemic nature of the problem which was pinned instead on
individual wrongdoers and she was accused of obstructing the board's
efforts to get to the bottom of what was going on.
John Stumpf, the chief executive who retired under pressure from the
scandal in October, was criticized for failing to grasp the gravity of
the sales practice abuses and their impact on the bank.
![](http://archives.lincolndailynews.com/2017/Apr/10/images/ads/current/atlantanationalbank_sda_072114.png)
In the 110-page report, Stumpf was described as someone who was blinded
by Wells Fargo's cross-selling success. He refused to believe the model
was seriously impaired and was full of admiration for Tolstedt, with
whom he had a long working relationship. According to one director,
Stumpf praised Tolstedt as the "best banker in America".
The report said Tolstedt hid the scale of the misconduct from the board,
which only discovered that 5,300 staff had been fired for opening over 2
million unauthorized accounts when the bank reached a $185 million
settlement with regulators in September last year.
On the advice of her lawyers, Tolstedt declined to be interviewed for
the investigation.
Wells Fargo said that she had been fired for cause and it would be
forfeiting her outstanding stock options with an approximate value of
$47.3 million.
Wells Fargo said it had decided to claw back approximately $28 million
of Stumpf’s bonus, which was paid in March 2016.
In total, the bank has fired five senior retail bank executives,
including Tolstedt, over the scandal and has imposed forfeitures,
clawbacks and compensation adjustments on senior leaders totaling more
than $180 million, including $69 million from Stumpf and $67 million
from Tolstedt.
Since the scandal broke, the bank has seen a steady decline in the
number of consumers opening checking and credit card accounts and it has
lost its status as America's most valuable bank by market value.
THE BOARD
Sanger, a board member since 2003, is under pressure to assure investors
and regulators that he is rooting out the bank's problems after a welter
of criticism that the board didn't do enough despite knowing about the
problem since 2014.
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According to the report, multiple board members felt misled by a
presentation by Tolstedt and others to the board's risk committee in May
2015. The board members said they left thinking that between 200 and 300
employees had been fired for sales practice abuses and the problem was
largely concentrated in southern California.
Last week, influential proxy adviser Institutional Shareholder Services
recommended investors vote to replace the majority of directors at Wells
Fargo, including Sanger and the other three independent directors, at
its April 25 annual meeting.
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![](../images/041017pics/busine17.jpg)
A man walks by a bank machine at the Wells Fargo & Co. bank in
downtown Denver, Colorado, U.S. April 13, 2016. REUTERS/Rick Wilking/File
Photo
![](http://archives.lincolndailynews.com/2017/Apr/10/images/ads/current/graue_17_malibu_022717.png)
The
Justice Department, meanwhile, is investigating whether executives hid details
from the company board and regulators as the problem grew over the years, people
familiar with the matter have told Reuters. U.S. Attorney offices in San
Francisco and Charlotte, North Carolina, are also investigating.
The report criticized the board for not centralizing the risk functions at the
bank earlier, for not requesting more detailed reports from management and for
not insisting Stumpf get rid of Tolstedt sooner.
Tim
Sloan, who replaced Stumpf as chief executive, is described in the report as
having little contact with sales practices at the bank before becoming chief
operating officer and Tolstedt's boss in November 2015. Six months later he told
her to step aside.
Since the scandal broke, the bank has ended sales targets, changed pay
incentives for branch staff, separated the role of chairman and chief executive
and hired new directors to its board.
A NOTEWORTHY RISK
A big part of Wells Fargo's problem was its decentralized business model, which
meant the retail bank was able to keep inquiries from head office at arm's
length and there was no joined-up effort by either the bank's human resources or
legal divisions to track and analyze the scale of the problem.
As far back as 2002, Wells Fargo's retail bank was taking steps to deal with
sales practice violations and in 2004, a report by the bank's Internal
Investigations division recommended eliminating sales goals for employees.
![](http://archives.lincolndailynews.com/2017/Apr/10/images/ads/current/castlemanor_lda_APRIL_2017.png)
That report was sent to, among others, the chief auditor, a senior in-house
employment lawyer, retail bank HR personnel and the head of sales & service
development in the retail bank. No action was taken.
Externally, Wells was lauded by investors for its ability to cross-sell
individual customers multiple products and for its squeaky-clean reputation
relative to peers in the wake of the financial crisis.
Internally, the sales pressure was oppressive, particularly in California and
Arizona, where senior bankers sometimes called subordinates several times a day
to check in and chastise those who failed to meet sales objectives.
A sales push, dubbed "Jump into January", saw bankers encouraged to make lists
of friends and family who were potential sales targets. Staff turnover usually
increased that month.
Sales practices were identified as a “noteworthy risk” to the board and its risk
committee, of which Sanger was a member, after a series of stories in the Los
Angeles Times detailed some of the sales practices.
But Tolstedt was left to deal with the issue and she was “notoriously resistant
to outside intervention and oversight” the report said.
Tolstedt was also perceived as having the support of Stumpf, who, in turn, was
seen not seen as someone to raise problems with.
"Stumpf was ultimately responsible for enterprise risk management at Wells
Fargo, but was not perceived within Wells Fargo as someone who wanted to hear
bad news or deal with conflict."
(Reporting by Carmel Crimmins; Editing by Muralikumar Anantharaman)
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