Wells Fargo Chief Executive John Stumpf's two disastrous appearances on Capitol Hill are amplifying calls for him to resign — and many analysts are wondering whether the embattled executive will be able to keep his job.
At both hearings, Stumpf was unable to answer basic questions about how and why thousands of employees opened up roughly 2 million phony accounts. He responded "I don't know" at least 30 times to specific questions from lawmakers and continued to struggle to explain how employees could engage in widespread fraud without higher-level executives either being aware of it or creating the culture for it to thrive.
"After this, it's going to be very difficult for him to survive," said Nancy Bush, an analyst at NAB Research. "I think he will be leaving now. I don't know if he will be forced out, but he oversaw a fraud. It wasn't a mistake, it was a fraud, and not only did he oversee it, he abetted it for five years."
Stumpf's performance was widely panned when he appeared before the Senate Banking Committee on Sept. 20. Many analysts said he needed to hit a grand slam when he appeared before the House Financial Services Committee on Sept. 29. Instead, he struck out, they said.
"He was hesitant to give answers he wasn't 100% sure of," said Jason Goldberg, an analyst at Barclays. "Hearings are never easy; they're long, and clearly this issue has taken on a heightened interest. What went on is not good and this did happen under his watch."
In many ways, Stumpf appeared to be trapped in a bad cycle. He repeatedly said he did not want to minimize the fraud, yet also emphasized that the 5,300 employees fired for opening fake accounts represented to just 1% of the retail bank's workforce. Lawmakers then accused Stumpf of attempting to minimize what happened.
One analyst said Stumpf failed to understand that 2 million unauthorized accounts might seem like a small number within the context of Wells Fargo's 93 million accounts, but in terms of scale it amounts to "the widest-ranging malfeasance since the mortgage crisis."
But Stumpf also lacked answers to questions about how individual bank branches set different sales goals and how bonuses were allocated as a result.
"You would think he would know about it, [since] they were very proud of their aggressive sales culture," said Paul Miller, a managing director and head of financial institutions research at FBR Capital Markets.
His performance was so poor that Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, said it was the primary reason she would introduce legislation to break up the institution.
"He doesn't know what is going on in this bank," Waters told reporters.
Goldberg and other analysts said Stumpf and Wells underestimated the public's reaction to the regulatory settlement.
"He's under tremendous pressure to fully quantify the issue, rectify the issue and enhance the firm's sales culture," Goldberg said. "It's going to take a bit of time to sort it out."
Jaret Seiberg, an analyst with Cowen and Co., said the decision about Stumpf's fate lies with the bank's board of directors — and it faces a tight deadline.
"The independent directors on the board of Wells Fargo have about six weeks to devise a plan for the future," Seiberg wrote in a note to clients. "If they are going to change management, now is the time to act. And if they plan to back Stumpf, then the bank needs to use the election recess to devise a political strategy to justify the decision. We are not sure what such a strategy would look like, but the bank needs a plan if it does not want this controversy to consume all of management's time in 2017."
Yet other analysts have sided with Stumpf, who maintained that the phony accounts were not material and therefore did not need to be disclosed to investors and reported to the Securities and Exchange Commission.
Bill Carcache, an analyst at Nomura Securities, wrote in a recent report that the $2.6 million in fees generated by the unauthorized accounts were "financially immaterial." In addition, Wells' cross-sell ratio would have been reduced by just 0.1 products per household had the accounts never been created, he wrote.
"If the unauthorized accounts did not boost Well's financial and operating performance, it's difficult for us to see how they could have influenced executive compensation," Carcache wrote.
Miller said Wells could become a poster child for why the jobs of chairman and chief executive should be split.
"This could be a case study," Miller said. "If the chairman and CEO were separate, [it] would never have gone this far."
While Stumpf is already on the ropes, it's clear that lawmakers will continue to pursue him and the bank. House Financial Services Committee Chairman Jeb Hensarling offered a damning indictment of the bank in his opening statement, rattling off a litany of laws the bank potentially violated, including: the Truth in Savings Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Electronic Funds Transfer Act, the Securities and Exchange Act of 1933, the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.
Hensarling emphasized that the committee will continue to investigate Wells' wrongdoing.
"The hearing is the start of the process rather than the end of it," Seiberg said.