How regulators maneuvered to oust Tim Sloan at Wells Fargo
At a congressional hearing in March 2019, Wells Fargo CEO Tim Sloan testified that the bank was in compliance with provisions of an 11-month-old regulatory order.
The next day, staffers at the Office of the Comptroller of the Currency shared copies of the hearing transcript and questioned the accuracy of Sloan’s testimony, according to a new report from House Democrats.
In an internal email, a senior OCC official noted that Sloan had been responding to a question from Rep. Maxine Waters, D-Calif., about the bank’s remediation plans for customers who paid for unnecessary auto insurance. “Have we told them they are in compliance?” the official asked.
Another senior OCC official responded that the San Francisco bank was not in compliance with one of two portions of its remediation plans.
Less than two weeks later, Sloan was out as CEO. The bank said it was Sloan’s own decision to retire, but the report released Wednesday reveals previously undisclosed moves that regulators made behind the scenes to force a change at the top of the $1.9 trillion-asset bank.
The report, which offers a rare peek at private communications between senior regulatory officials and leaders at the scandal-plagued bank, confirms long-standing suspicions that the OCC helped to oust Sloan, though it also shows that the Federal Reserve Board played a significant role.
On Thursday, Waters told reporters she is considering recommending a Justice Department probe into Sloan’s congressional testimony, which the Democrats’ report calls inaccurate and misleading.
House Republicans were also critical of Sloan on Thursday, but their forthcoming report, a summary of which was obtained by American Banker, does not go as far as the Democrats’ report did.
The GOP staff report found that Sloan made incomplete and overly optimistic public statements about the bank’s progress toward complying with regulatory orders, and that his predictions on the timeline for completing that work were unsupported by the facts on the ground.
Sloan could not be reached for comment Thursday. Spokespeople for Wells Fargo and the Federal Reserve Board declined to comment.
The regulators’ dissatisfaction with Sloan, a longtime executive at Wells Fargo who replaced John Stumpf as CEO after the bank’s fake-accounts scandal exploded in 2016, was building for many months before his resignation.
In February 2018, the Fed took the unusual step of imposing an asset cap on Wells Fargo in response to what the agency called “widespread consumer abuses” and “other compliance breakdowns” at the bank.
Tensions soon arose between high-ranking officials at Wells Fargo, who were focused on getting the asset cap lifted quickly, and Fed officials, who felt that the bank should instead be focused on addressing its weaknesses in risk management, according to the report by the Democratic staff of the House Financial Services Committee.
The bank’s relationship with its regulators was also strained by its efforts to influence the wording of an OCC press release in April 2018. The House Democrats’ report states that Karen Peetz, who was then chair of the bank’s risk committee, called senior OCC examiners to push for the removal of draft language that noted the OCC’s authority to remove bank directors and management.
The press release, which announced a $500 million penalty against Wells Fargo, stated that the OCC reserved the right to make changes to executive officers or the bank’s board.
James Quigley, another Wells Fargo board member, later wrote in an email that the bank’s effort to edit the OCC’s press release “was not appreciated” and damaged its relationship with OCC staff.
Regulatory pressure on Sloan was building in the days before his March 12, 2019, appearance on Capitol Hill. On March 11, the Fed sent a letter to both board Chair Elizabeth “Betsy” Duke and Sloan stating that its plans to remediate the February 2018 consent order remained materially incomplete.
“Continued failure to submit acceptable plans reflects poorly on the firm, and negatively influences supervisors’ view of the board and senior management’s capacity to effectively manage and govern the firm,” the letter from Federal Reserve staff stated.
Then came Sloan’s public testimony, which was poorly received by the bank’s regulators.
Just an hour after the hearing ended, an OCC spokesperson emailed a statement to reporters expressing disappointment both with the bank’s performance under its consent orders and with what the agency characterized as Wells Fargo’s inability to execute effective corporate government and a successful risk management program.
The next day, OCC staffers met with the bank’s board of directors. One of the agency’s talking points for the meeting was: "The institution that we see today is not stronger than the one that emerged from the Sales Practices mess in 2016.”
Two days later, Peetz, the chair of the risk committee until she left the board last May, spoke privately with a senior Fed official, who suggested that the OCC wanted Sloan out soon.
The unidentified Fed official asked Peetz whether it was clear that the OCC was “shortening the runway” for Sloan’s succession, according to the House Democrats' report. The Fed official asked a version of that same question three times, the report states, citing Peetz’s notes.
This conversation set off alarm bells inside the bank’s boardroom. Peetz later told congressional investigators that Duke asked her to relay the conversation “word-for-word” to the bank’s full board of directors. Later that month Sloan was gone.
Wells Fargo will try to turn the page on the Sloan era during congressional hearings next week. CEO Charlie Scharf, who joined the bank in October, is scheduled to testify Tuesday before the House Financial Services Committee.
Scharf is expected to highlight a series of management changes he has made during his five-month tenure, as well as the corporate restructuring the bank announced last month. Scharf is also expected to discuss an updated risk management framework that he unveiled on Feb. 18.
Comptroller Joseph Otting released a statement Thursday that was more complimentary of Wells Fargo’s current leadership than his agency’s public statements during Sloan’s tenure were.
“While the bank still has much work ahead, we are encouraged by the leadership and focus on regulatory matters by the bank’s new Chief Executive Officer,” Otting said.
Waters, who chairs the House Financial Services Committee, struck a more negative tone regarding Scharf’s nascent tenure as CEO. “I think perhaps less has been done than I would anticipate at this time,” she said Thursday.
Waters had harsher words regarding two Wells Fargo board members — Duke and Quigley — who are scheduled to testify to her committee on Wednesday. She said that she will call on both to resign.
Quigley joined the company’s board in 2013, and Duke, a former Federal Reserve governor, joined two years later.
The House Democrats concluded in their report that Wells Fargo’s board failed to ensure that the bank had managers with sufficient compliance expertise. The report also states that the board allowed the bank’s management to submit deficient plans in response to consent orders and prioritized financial considerations over fixing issues identified by regulators.
“Duke and Quigley failed in their responsibilities as board members,” Waters said.
Neil Haggerty contributed to this report.