Next round of Wells Fargo hearings will shine spotlight on board's role
WASHINGTON — The latest phase of lawmakers' inquiry into Wells Fargo's consumer banking practices could have lasting implications for board members at all the largest banks.
The House Financial Services Committee will hold a new round of hearings with the embattled bank this coming week. A hearing Tuesday will feature CEO Charlie Scharf's first testimony to Congress since starting the job.
But on Wednesday the committee is scheduled to examine the role of Wells' board members and will question former Chair Elizabeth “Betsy” Duke and Richard Quigley, who announced their resignations Monday after Chairwoman Maxine Waters, D-Calif., told reporters she would ask them to step down.
Up until now lawmakers have periodically put only bank CEOs under the microscope in a hearing room, while board directors have largely avoided the public criticism directed at their institutions. Analysts say having board members testify makes them more accountable for how they oversee bank management.
"It’s fair to say that board members have escaped that level of scrutiny before, so it’s going to be a tricky hearing for them,” said Ian Katz, a director at Capital Alpha Partners. “It really makes it clear to anyone that’s on the board at a big bank that they really need to pay attention and ask tough questions to management."
But Katz added that this level of public scrutiny could also further make it difficult for banks to attract qualified board members.
"If anyone was having second thoughts, this would certainly add to those second thoughts, I would think,” he said.
Some Capitol Hill watchers noted it is just unusual for board members to appear before Congress.
“I’ve never seen a board of directors being brought up to the Hill,” said Ed Mills, a policy analyst at Raymond James. Katz agreed "it's territory that hasn’t been charted, at least not in a long time.”
Duke and Quigley are notable figures in part because, despite turnover for Wells Fargo's board, they were both there when the bank's phony-accounts scandal came to light in 2016. Duke, who was chosen to chair the board in January 2018, played an important role in the more recent hiring of Scharf. A former executive at various banks, Duke at one time also served as a governor on the Federal Reserve Board.
Both board members feature prominently in a Democratic staff investigative report released Wednesday by the House Financial Services Committee.
Rep. Maxine Waters, D-Calif., who chairs the committee, told reporters on a call Thursday that she would ask Duke and Quigley to resign, and indicated that other board members at other large banks could be on the hook in the future if a bank fails to comply with consumer regulations.
“I think that Wells Fargo is the poster bank for what’s wrong with big banks in our country and … I think that board directors cannot escape their responsibility,” Waters said. “This may be an area that has been missed. … We will not hesitate to focus on boards of directors as we see is necessary to do so.”
Financial industry observers say Duke and Quigley are likely to face a barrage of questions on subjects ranging from what more they could have done to stop unauthorized account openings to how seriously they take their responsibilities as board members more generally.
The "role of a board and the board’s responsibilities and did they live up to those in their oversight of management, I think that is going to be one of the big things here,” said a former senior Democratic congressional staffer.
The House staff report showed that Duke even questioned the Consumer Financial Protection Bureau’s practice of including her in letters requesting that the bank take certain actions.
“Why are you sending it to me, the board, rather than the department manager,” Duke said in emails to the CFPB obtained by House Financial Services Committee staff.
Katz said that members of the committee will likely ask Duke, “Why did you seem dismissive of your own importance in these emails?”
Republican House staff released a separate report on Wells Fargo Thursday, also highlighting deficiencies with the bank’s board. The GOP report noted concerns among regulators that board members were not pressuring the bank enough to swiftly comply with their enforcement actions.
“Officials at the CFPB believed the Board was ultimately responsible for all operations of the bank, and in part blamed the Board’s lack of accountability for the slow progress of the company under the consent orders,” the GOP report said.
But the GOP report also highlighted improvements made at the board level, including the addition of “two new members with extensive bank experience.”
Aside from the repercussions for Wells Fargo’s board, the hearing is also a signal to members of other big-bank boards that they need to conduct strict oversight of their CEOs and management teams.
"You can’t just be on the board, rubber-stamp the CEO, and you can’t just ignore regulators’ oversight," said Katz.
The hearing Wednesday with Duke and Quigley is one of three for Wells Fargo that the panel is holding this month, including the hearing on Tuesday with Scharf. Because the new CEO was not associated with Wells Fargo during the fake-accounts scandal and a number of other consumer abuses, he may not face the same tough level of questioning as Duke and Quigley.
“There is not a lot they can do for the new CEO, he just got there. He wasn’t at the company when the problems occurred,” said Brian Gardner, an analyst at KBW. “They can push him to be aggressive, but they can’t blame him for the problems.”
Even so, Waters told reporters she wasn’t necessarily satisfied with Scharf’s progress in fixing the problems with the bank.
“I met with him and I asked him, what was his plan, what was his vision,” Waters said. “He basically said he wasn’t ready to commit to a plan at this time and we will be raising further questions with him about how much he’s learned, how far he’s gotten. … I think perhaps less has been done than I would anticipate at this time.”
The bank sent American Banker a document highlighting a number of corporate improvements made since Scharf took over, including adding a new CEO of consumer lending, a new corporate strategy, a new risk management framework, and higher minimum hourly wages.
Wells Fargo has been hammered by Congress for almost four years, and some observers say a few members may indicate in their questioning that they would like to move on from bashing the bank.
“My guess is the pushback would be, here’s all the things we’ve found in our committee investigation,” the former Democratic staffer said. “There might be a little bit of Wells Fargo fatigue, but if that is going to be the sense some of the members have, I don’t think that will be a very strong ground to stand on.”
Gardner added that Republicans will likely back the Trump administration regulators’ actions against Wells Fargo.
“I suspect that Republicans will defend what the regulators have done, because Republican-appointed regulators have been pretty tough on the company,” Gardner said.