Only a week ago, John Stumpf seemed the least vulnerable of the big-bank chief executives.
He'd deftly guided Wells Fargo through the financial crisis, seizing an opportunity to join the industry's big leagues. His earnings machine was so well-oiled that profits rose on a year-over-year basis for 18 straight quarters. Even a recent hiccup involving loans to the sagging energy sector barely made a dent in the firm's staggering $23 billion in annual net income.
Unfathomably, Stumpf is now fighting to keep his job. A scandal that Wells Fargo initially appeared to underestimate has put the 62-year-old CEO on treacherous and unfamiliar terrain — defending his bank's reputation in the face of evidence that thousands of employees broke the trust of customers.
Damage control efforts are in high gear. On Tuesday, Stumpf blamed rank-and-file employees at the San Francisco-based bank — 5,300 of them were fired over a five-year period — for failing to live up to the firm's values. Two of the five primary values listed on Wells Fargo's website are "ethics" and "what's right for customers."
Before dawn on Wednesday, Wells sent an email to customers that read like a plea not to take their business elsewhere.
"Last week's news did not reflect Wells Fargo at its best. Your trust and confidence in us is something we hold near and dear," read the email, which was signed by Stumpf. "I know I speak for our 268,000 dedicated team members when I thank you for giving us the opportunity to continue serving you and supporting your financial future."
On Tuesday, Stumpf is scheduled to testify before a Senate committee. That is a hot seat that other big-bank CEOs have survived — Jamie Dimon and Lloyd Blankfein are examples — but Stumpf's task is arguably more difficult.
The scandal that brought JPMorgan Chase's CEO to Capitol Hill in 2012 centered on an individual trader known as the London Whale. Similarly, Goldman Sachs' chief was grilled in 2010 about the pre-crisis conduct of a small number of employees.
Stumpf, on the other hand, will have to answer for a nationwide pattern of illegal conduct. Wells employees opened roughly 1.5 million deposit accounts and 565,000 credit card accounts that may not have been authorized, according to the bank's own analysis. The employees were motivated to hit sales targets and receive bonuses.
Publicity-seeking lawmakers will surely ask: What did you know about the phony product sales, and when did you know it?
Unfortunately for Stumpf, there are no good answers, analysts said. If he didn't know about the misconduct, he will appear to have fallen asleep at the switch. And if he did know, that's even worse.
"So you either created the culture, or you're too big to manage. And obviously if you're Wells Fargo, you don't want to own up to either of those," said Edward Mills, an analyst at FBR Capital Markets.
Rather than copping to any systemic failings, Stumpf may seek to blame the misconduct on fired employees, if comments he made in interviews Tuesday are any guide.
"I wish it would be zero, but if they're not going to do the thing that we ask them to do — put customers first, honor our vision and values—I don't want them here," Stumpf told The Wall Street Journal.
Later, Stumpf said through a spokeswoman, "I feel accountable and our leadership team feels accountable," according to the newspaper. Wells Fargo did not make Stumpf available for an interview with American Banker.
Oscar Suris, the head of corporate communications for the bank, said in an interview that the conduct was not as widespread as has been portrayed. He said only 1% of its workforce was found to have engaged in inappropriate behavior. Out of the nearly 2 million accounts affected, only 115,000 had fees charged on them, he said.
The timing of the Senate Banking Committee hearing is unfavorable for Wells Fargo. It comes less than two months before Election Day, during a year in which both Democrats and Republicans are eager to cater to anti-bank populism.
It also comes as the Justice Department is said to have opened a criminal probe into the matter, assessing whether executives directed the fraud or were willfully blind to it, according to the Wall Street Journal.
Also scheduled to testify Tuesday are Comptroller Thomas Curry and Richard Cordray, who heads the Consumer Financial Protection Bureau, an agency that many congressional Republicans want to rein in. The hearing, which is being called by Republican Sen. Richard Shelby, is titled "An Examination of Wells Fargo's Unauthorized Accounts and the Regulatory Response."
One unanswered question about the hearing is whether Carrie Tolstedt, whose retirement as Wells Fargo's consumer banking chief was announced in July, will also testify. Her presence could alter the dynamics by absorbing criticism that would otherwise be focused on Stumpf.
Stumpf will be aided in preparing by Suris, a Wells executive vice president and head of corporate communications, who was hired in 2009 from Ford Motor Co.
Suris helped Ford executives navigate 2008 congressional hearings on the auto bailout, in which lawmakers lashed out at the Big Three auto companies for flying private jets to Washington.
Of course, the people who will ultimately determine Stumpf's fate are not politicians but Wells Fargo's shareholders. Warren Buffett, one of the world's richest men and the CEO of Berkshire Hathaway Inc., the bank's largest shareholder, has so far been silent. Buffett's office did not return a call seeking comment.
Stumpf's roots in banking go back to Minneapolis-based Norwest Corp., which merged with Wells Fargo in 1998. He has been CEO since 2007. Today he is barely two years away from retirement age, and a carefully managed succession process is well under way, with signs pointing to President and Chief Operating Officer Tim Sloan as his likely successor.
But suddenly, the question is whether Stumpf will be able to hang on until age 65.
"I think he flunks Crisis Management 101, which is: get it all out, be contrite, go back and fix the problem," said Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy. "On a short-term basis, I don't think he's being fully transparent."
Americans for Financial Reform, a Washington-based group that is often critical of big banks, said Wednesday that Wells Fargo should claw back bonuses paid to Stumpf during the time when the misconduct occurred, in addition to money being paid to Tolstedt.
Nell Minow, vice chair of ValueEdge Advisors, a firm focused on shareholder rights, argued that Stumpf should lose his job.
"If you're paying people based on the quantity of the transactions and not the quality of the transactions, you are going to have a catastrophe on your hands," she said. "If no shareholder lawsuit has been filed yet, start counting."
Raj Date, managing partner at Fenway Summer Ventures, a fintech-focused venture capital fund, and a former deputy director of the CFPB, said that companies that use payment incentive schemes need to monitor the effects of those plans on employee conduct.
"Because there are always, always unintended impacts on conduct," he said.
"The great irony, of course, is that Wells Fargo and John Stumpf in particular have stellar reputations, and they probably have deserved those strong reputations," Date said.
Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods, said that he doesn't expect Stumpf to step down unless there is a "smoking gun" that connects the illegal sales tactics directly to the CEO.
"It's hard for us to see the catalyst that would take it all the way up to the CEO unless it was directed by him or the upper echelons of senior managers," Kleinhanzl said. "The buck should stop with him, but the actual dismissals should probably be below him."
He added that the phony product sales, though substantial in number, did not generate a lot of revenue for Wells Fargo. "You can't say that Wells was benefitting materially from this," Kleinhanzl said. "That's why we don't see the CEO needing to go as a result."
Wells Fargo's stock price has fallen by about 6% since Thursday, when the company was hit with $190 million in regulatory penalties and restitution. As a result of the sell-off, JPMorgan has moved past Wells to become the largest U.S. bank by market capitalization.
By Wednesday, the list of people castigating Stumpf included not only financial reformers and corporate governance advocates, but also financial analysts.
"He should lose his job over this," said Erik Oja, an analyst who covers Wells Fargo for S&P Capital IQ. "We're talking about widespread fraud over a number of years."
Oja quoted comments that Buffett made in 1991, when he was a major investor in Salomon Inc., the investment bank that was in the midst of a bond trading scandal: "Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."
"He means business," Oja said, in reference to Buffett. "I would expect that he will make a move shortly. Not sure what his move will be, but there will be change."