Lawmakers Ratchet Up Demands for Wells: Break It Up
WASHINGTON — It appeared unlikely the situation could get any worse for Wells Fargo Chief Executive John Stumpf after senators sharply criticized him at a hearing last week, calling on him to return pay and resign.
But if anything, Stumpf's appearance before the House Financial Services Committee on Thursday was even more brutal. Lawmakers ratcheted up their demands, moving beyond just punishing Stumpf and suggesting that Wells Fargo itself was too corrupt to survive.
The hearing hit its apex after nearly four hours, when Rep. Maxine Waters, the top Democrat on the panel, said she'd had enough.
"I have come to the conclusion that Wells Fargo should be broken up. It is too big to manage," the California Democrat said. "I am moving forward to break up Wells Fargo Bank."
The breakup call was a significant moment, especially considering Waters comes from Wells' home state and wields influence among House Democrats. If Democrats were ever to seize control of the chamber again, Waters would presumably chair the House Financial Services Committee, making her a powerful enemy for Wells.
Yet despite hearing her comments, Stumpf made no real effort to rebuff them by touting the arguable advantages of large banks to consumers and the economy. Instead, his only defense was to apologize for the bank's conduct, promising to do better.
After the hearing, Waters told reporters that she plans on drafting legislation to break up Wells Fargo specifically, but other banks may be too big as well.
"We have to go through a process by which to design this legislation and go forward with it, but what you need to know is I am committed to breaking up Wells Fargo and if that leads us to a conclusion that all the big banks should be broken up — they are too big to manage," said Waters, who added that Stumpf's inability to answer lawmakers questions during the hearing led her to the determination.
"He doesn't know what is going on in this bank," Waters said.
Several other lawmakers, meanwhile, called on Stumpf to resign, echoing comments last week by Sens. Elizabeth Warren, D-Mass., and Jeff Merkley, D-Ore. But some Democrats were ready to go even further.
"You and your entire leadership team are guilty of conspiracy to commit fraud, conspiracy to commit identity theft, clearly racketeering and a dozen other crimes," said Rep. Michael Capuano, D-Mass. "Why shouldn't you be put in jail?"
During the hearing, Stumpf was mostly calm, but he got flustered at times as he paged through a white binder to come up with the number of phony accounts opened in certain states.
As he did last week, Stumpf struggled to respond to lawmakers' questions. He could not say how many employees were fired for not meeting sales goals, how many complaints had been filed through an internal whistleblower hotline about high-pressure sales tactics and exactly what senior management did once it learned of the fraud in 2013.
"I'm amazed at what you do not know about your business," said Rep. Roger Williams, R-Texas. "I'm amazed at how many 'I do not knows' I've heard."
Stumpf repeatedly defended the bank's culture, arguing that the fraud was the work of thousands of low-level employees. He said that cross-selling – the centerpiece of Wells' banking strategy – was not to blame for the fraud.
"I led the company with courage and I didn't do anything – " Stumpf said, before being cut off by Rep. David Scott, D-Ga.
"This is one of the most outrageous acts that any banking executive has done," Scott said. "You took advantage of unsuspecting, loyal customers, people in almost every single district. You did that. And you are the chief executive officer. You set the tone and you should be downright ashamed of yourself."
Stumpf replied, "Some have suggested the problem was cross-selling, but that is not the case."
Rep. Nydia Velasquez, D-N.Y., said she plans to ask the Small Business Administration to open an investigation into whether the illegal sales practices were used in selling small-business loans.
Rep. Brad Sherman, D-Calif., wanted Stumpf to waive arbitration clauses and promise to allow customers who were barred from suing the company for the phony accounts to take Wells to court.
But Stumpf refused, saying, "No, we're going to pay for a mediator."
Stumpf again declined to identify any higher-ups who had been fired, saying only that investigations by Wells' board are continuing. It remains unclear if he can keep his job. A report Thursday by The Street's Money blog suggested that investor Warren Buffett had lost faith in Wells' senior management, though a spokesperson for the billionaire later denied that was the case, according to CNBC.
Asked during the hearing if he had had contact with Buffett, Stumpf said that he had talked with the investor by phone. But he would not say what they discussed.
One big area of concern remains whether Wells Fargo violated requirements of the Securities and Exchange Commission by not disclosing it was under investigation for the fraud.
Warren, Merkley and Sen. Bob Menendez, D-N.J., sent a letter Tuesday to SEC Chair Mary Jo White to investigate whether Wells Fargo executives violated the Sarbanes-Oxley Act by not disclosing the widespread nature of the fraud.
Stumpf has argued the investigation was not material, since the ultimate penalties – $190 million in fines and restitution paid to federal regulators – did not threaten the bank.
But lawmakers did not accept his arguments.
"Are you saying that all those quarterly reports you were filing that the information you had in '11, '12 and '13 and '14, none of that information was material?" Rep. Scott Garrett, R-N.J., asked Stumpf.
Stumpf replied that, "at the time through the facts and circumstances we filed ... we did not believe it was material."
Rep. Carolyn Maloney, D-N.Y., said the timing of a stock sale Stumpf made was suspicious and may indicate insider trading. She pointed to a $9 million trade in Wells Fargo stock that Stumpf made on Oct. 30, 2013, just before the Los Angeles Times published a report on the phony accounts.
"That is by far the largest open-market sale of Wells Fargo stock that you've made in your nine years as CEO," Maloney said. "Did you dump $13 million of Wells Fargo stock — which you did through your family trust — right after you found out that your bank had been fraudulently opening hundreds of thousands of scam accounts ripping off your customers?"
Stumpf denied the charge, saying that he currently owns four times as many shares as required.
"I did not sell shares at the time because of anything related to" the fraudulent account openings, Stumpf said. "I sold those shares and I sold them with proper approvals."
Though Wells announced this week that it would be clawing back pay from Carrie Tolstedt, the executive who previously headed the division in charge of community banks, and that Stumpf would lose his bonus, lawmakers appeared unimpressed. They argued that executives should have lost their jobs.
"It is beyond credibility that somebody up the food chain didn't order this, condone it or turn a blind eye to it," said Chairman Jeb Hensarling, R-Texas. "Who is the highest person in the management team who is going to be dismissed for these activities?"
Stumpf replied that the bank was undertaking an internal review. "I can't give you a specific time frame," he said. "We're moving on that directly and we're going to get to the bottom of this. People will be reviewed across the board."
Hensarling, Capuano and several other lawmakers said the fines were just a drop in the bucket to Wells.
"You screwed student loan holders, credit unions, Fannie Mae, Freddie Mac, African-Americans, Hispanics, health care workers, on and on," Capuano said. " 'Who cares, we'll pretend to be sorry, and fire some workers.' "
But Stumpf denied that the fines were just the "cost of doing business at Wells."
"I don't want our culture to be defined by these mistakes," he said.
To which Hensarling replied: "It's a little late."