Wells Fargo CEO John Stumpf is in front of the Senate Banking Committee at 10 a.m. ET on Tuesday to answer questions about fraudulent accounts opened by Wells employees.
2 million checking and credit card accounts were opened from 2011 onward by Wells Fargo employees without the knowledge of customers. The accounts were created in order to generate fees for Wells, as well as for employees to meet aggressive sales targets.
The highlights:
- “This was not a mix up under the Christmas tree. This was fraud, fraud that you did not find, or fraud that you did not fix quick enough,” ranking member Sen. Sherrod Brown said, addressing Stumpf.Stumpf said that the creation of the accounts was not a systemic issue caused by the upper levels of the firm. “I do want to make it clear that there was no orchestrated effort, or scheme as some have called it, by the company,” said Stumpf.Stumpf also defended the culture of the company, saying that it was not “random acts” that caused the scandal and the broader firm did not create an environment that led to the problem.The bank is expanding their review for possible improper accounts to 2009 and 2010.Stumpf said the business was dealing with the issue for a number of years before he knew about it. “If I could turn the clock back, I, we all, wish we had done something earlier,” said Stumpf.Most of the people that were laid off were in “good-paying jobs” according to Stumpf, including bankers and one regional president.Stumpf defended the compensation that Carrie Tolstedt, the head of community banking that oversaw the fraudulent activity, received upon her retirement in July. He also said that she had decided to retire after being notified that the bank wanted “to go in a different direction.”Sen. Elizabeth Warren lit into Stumpf, saying he had exemplified “gutless leadership” and he should be personally “criminally investigated” for the scandal. Sen. Jeff Merkley also called for Stumpf’s resignation.
The Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency, and the Los Angeles prosecutor all went after Wells for the practice and settled for a $185 million fine.
Representatives from the CFPB and Office of the Comptroller will be present for the hearing.
10:00 - Sen. Richard Shelby (R-AL), the chairman of the committee, opened the meeting and noted the penalties against the firm and the comments from former employees on the "high pressure" sales environment at Wells. "I've often said that banking is based on trust, and trust was broken at Wells Fargo," said Shelby.
Shelby also questioned why regulators took until 2015 to release information on the unauthorized accounts and when they knew of the accounts.
10:06 - Ranking member Sen. Sherrod Brown (D-OH) said that Wells Fargo was defrauding customers of their "hard earned money" to "enrich executives" and noted that the firm has not "admitted to responsibility for misdeeds." Brown also claimed that the firm has been "downright hostile" towards customers who have faced these issues.
Brown also claimed that employees at Wells Fargo worked overtime off-the-clock and "cut corners" in order to meet the tough sales guidelines at Wells. "You would think you would have taken the lessons of the financial crisis to heart given the high cost to this country," said Brown.
"This was not a mix up under the Christmas tree. This was fraud, fraud that you did not find, or fraud that you did not fix quick enough," said Brown, addressing Stumpf.
10:13 - Stumpf began his prepared remarks, which were previously released on Monday by the New York Times.
"I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members and to the American public," said Stumpf in his prepared remarks.
Additionally, Stumpf said that the issues with opening accounts were not a systemic issue created by the upper levels of the firm.
"I do want to make it clear that there was no orchestrated effort, or scheme as some have called it, by the company," said Stumpf. "We never directed or wanted out employees, whom we refer to as team members, to provide products and services to customers they did not want or need."
10:18 - Stumpf announced three new measures that the bank will undertake beyond what has already been done. They are:
Expanding their review for possible improper accounts to 2009 and 2010. Contact every customer to make sure that they wish to have all of the products they currently have with the bank. Contact every credit card customer to ask if they wish to have their credit card, similar to the practice Wells undertook in California previously.
10:24 - Stumpf said that the bank did not know if the fraudulent account activity had occurred before 2011, and that is why the bank was extending their review to 2009 and 2010.
10:26 - Stumpf said the business was dealing with the issue for a number of years before he knew of it. "If I could turn the clock back, I, we all, wish we had done something earlier," said Stumpf. Stumpf said that he and other senior executives found out about the issue in 2013, but lower-level management was dealing with it before that time.
10:29 - Stumpf defended the compensation that Carrie Tolstedt, the head of community banking who oversaw the fraudulent activity, received upon her retirement in July. Stumpf said that Tolstedt did not receive any severance upon her retirement in July, but the reported $125 million in compensation she received was from previous stock compensation.
10:32 - Sen. Shelby asked Stumpf about customers' trust in Wells Fargo and whether it was violated. "There is no question with some of our customers we have violated that trust and we will work hard to rebuild that," said Stumpf.
10:34 - Stumpf said Wells Fargo would consider going back beyond 2009 to see if fraudulent activity occurred.
10:39 - Most of the people that were laid off were in "good-paying jobs," according to Stumpf, including bankers and one regional president. Stumpf also said he would not make a recommendation whether the board of directors should clawback any of the up to $125 million in stock compensation for Tolstedt.
Stumpf also said that Wells Fargo brought in PriceWaterhouse Coopers to review the possibility of fraudulent accounts in August 2015 at the recommendation of regulators, not completely of its own accord.
10:42 - Sen. Brown asked why PWC was not brought in prior to 2015 when there were indications, including a Los Angeles Times article in 2013, that there were accounts being opened.
10:44 - Sen. Bob Corker (R-TN) said that not clawing back some of Tolstedt's stock compensation would be "malpractice" of public relations for all involved.
Stumpf said that the board of directors was made aware of possible issues in late 2013 or early 2014, but did not know if it was triggered by the LA Times article.
10:47 - "It got to the board level in 2013 because progress was not being made," said Stumpf in noting the amount of knowledge Tolstedt had about opening of fraudulent accounts. "It was based on a number of issues, this was one of those issues," said Stumpf when asked by Corker whether Tolstedt left over the accounts.
10:50 - Stumpf said there were a number of initiatives to enforce and emphasize ethics when the possibility of fraudulent accounts being opened came to light. "However it was not fast enough, not far enough, and I apologize for it," said Stumpf.
10:56 - "I'm not a criminal officer, I'm not a lawyer, I don't know the legal term," said Stumpf when pushed by Sen. Patrick Toomey on whether the employees committed fraud by opening the unwanted accounts.
"That behavior has no place in our culture," said Stumpf. "If that means fraud, that means fraud."
11:03 - "This isn't the work of 5,300 bad apples, this is the work of sowing seeds that poisoned the orchard," said Sen. Robert Menendez (D-NJ). "You and your executives created an environment that allowed for this behavior."
Menendez also noted that the average pay for a teller at Wells Fargo (which he noted was around $10,000 above the poverty line) and the quota-based system lead to a high pressure environment that did not protect the customers of the bank.
"You think that environment was the appropriate environment to protect customers?" asked Menendez.
Stumpf said that most of the firm's employees enjoy working at Wells Fargo based on surveys done by the bank.
11:07 - Menendez asked if any senior executives have been hurt financially due to the fine or the scandal. Stumpf said that people in charge of risk and regional presidents had been "held accountable."
11:14 - Stumpf said the he does not know if the 565,000 credit cards that were opened but not activated may have impacted credit scores for customers.
11:21 - Stumpf noted that California, Arizona, and New Jersey were disproportionately impacted because the size of Wells' business in those areas.
11:26 - "Since this massive year's long scam came to light you have said 'I am accountable.' What have you done to hold yourself accountable?" asked Elizabeth Warren. Warren asked if Stumpf had returned any of his compensation after the scandal had come to light. "Have you returned one nickel of the money you earned while this scandal was going on?" asked Warren.
Stumpf did not respond. "I'll take that as a no," said Warren. Stumpf also said that he has not fired any senior executives as defined by Warren. "It's gutless leadership," said Warren.
11:30 - Warren said that cross selling, the practice of getting customers to sign up for new products from Wells, was designed just to "pump up the stock of Wells Fargo" and increase the value of Stumpf's stock-based compensation.
"You should resign, you should give back the money you made while this scam was going on, and you should be criminally investigated by the Department of Justice and the Securities and Exchange Commission," said Warren.
"The only way Wall Street will change is if executives face jail time after committing fraud."
11:47 - Tim Scott (R-SC) said he has "two or three mortgages" and "a couple of accounts" with Wells Fargo and he is "disappointed with my financial institution" and asked if there is a "safe place" where employees can go if they see an issue at Wells Fargo.
"Each team member, no matter where they are in their organization, is encouraged to raise a hand if they are being asked to do something they do not feel is right," responded Stumpf. He also said there is an anonymous ethics phone line employees can call.
11:56 - "You still are not acting fast enough," said Sen. Heidi Heitkamp. "You do not have the answers here today that would allow us here to move forward." Heitkamp added that Stumpf did not come to the meeting with answers on how the bank is restoring customer confidence and trust.
Heitkamp also emphasized that no one on the committee believed Stumpf when he said that the scandal was not due to the culture.
12:00 - "I want to make clear, I do not believe 5,000 did 5,000 random things on their own," admitted Stumpf, who has maintained it was not company-wide culture that lead to the scandal. He said that people were likely talking to each other in the organization about the actions.
12:06 - Sen. Jeff Merkley asked if Wells Fargo tellers and other employees were put between a "rock and a hard place" due to the high pressure sales environment. "I do not believe that," said Stumpf.
Merkley also said that "accepting responsibility would be to resign, as my colleague suggested."
12:13 - Stumpf said that Wells Fargo never disclosed the issues to shareholders through filings because "it was not a material event."
12:18 - Stumpf said that he held weekly meetings with Tolstedt (they both started in their roles in 2007), but he was not aware of firings due to fraudulent accounts until 2013. According to previous statements, 1,000 employees were fired every year from 2011 onwards due to the account openings.
12:32 - Sen. Charles Schumer (D-NY) "urged" Stumpf not to issue bonuses to executives and to claw back Tolstedt's the stock compensation. Schumer also said he believed the Wells case proves the need for the CFPB.
12:35 - Warren questioned why Tolstedt was retiring just 3 months before actions by regulators and when the scandal was known by Wells Fargo. Warren also noted that if Tolstedt was fired instead, she would have lost $45 million of the stock compensation.
Warren asked if Stumpf asked if he considered firing Tolstedt before retirement due to her oversight of the division involved in the scandal, which Warren notes Stumpf knew about at the time of Tolstedt's retirement. "No," replied Stumpf. He continued that he was considering Tolstedt's full body of work and customer relationships built when allowing her to retire.
12:42 - Warren asked if Stumpf personally believed Tolstedt's compensation should be clawed back after the "massive fraud" that happened on her watch. "I will not opine on that," said Stumpf, noting that he did not want to influence the compensation committee of the board of directors that he does not serve on.
Warren said that the difference in actions by Stumpf towards lower-level employees and customers compared to Tolstedt made it clear that Wells Fargo's scandal is just like 2008 in that "a giant bank cheats the little guys and the executives line their own pockets."
"Mr. Stumpf, you make it clear that Wall Street will not change until we make it change," concluded Warren.
12:46 - And with that Stumpf is finished. Thanks for joining.