HELD TO ACCOUNT
Wells Fargo’s CEO forfeits millions in salary and unvested stock to buy time amid scandal,
Wells Fargo & Co. chief executive officer John Stumpf, fighting to keep his job amid a national political furor, will forgo more than $41 million of stock and salary as the bank’s board investigates how employees opened legions of bogus accounts for customers.
It’s a swift turn for one of the industry’s most exalted leaders, marking the biggest forfeiture of compensation from a major U.S. bank chief since at least the 2008 financial crisis. But it may not be enough to spare Stumpf another lashing when he returns to Capitol Hill on Thursday. Last week, Senator Elizabeth Warren demanded he resign for “gutless leadership” after he blamed abuses on low-wage employees.
Giving up pay “is a smack on the head, but it doesn’t end the question of whether Mr. Stumpf should be allowed to head a bank,” said Erik Gordon, a law professor at the University of Michigan in Ann Arbor. “He is responsible for the culture and he knew or should have known about a practice that was so widespread and well-known in the bank.”
Stumpf told employees in a memo that he offered to give up $41 million in unvested stock, which reflected his performance back to 2013, and the board accepted. Former community banking chief Carrie Tolstedt will forgo about $19 million in unvested stock, and agreed not to cash in outstanding options during the review, the lender said Tuesday in a statement. She has left the firm, after previously planning to retire at year’s end. Neither Stumpf nor Tolstedt will get a bonus for this year.
The decision “should buy the CEO more time to deal with the ongoing scandal,” Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods, said in a note Wednesday to clients. “We believe Wells Fargo will be able to manage through the scandal with the current executive team intact.”
The bank’s shares climbed 1 per cent to $45.55 at 8:29 a.m. in early trading in New York. The stock tumbled 17 per cent this year through Tuesday’s close, the worst performance in the 24-company KBW Bank Index.
Wells Fargo is under intense pressure to show it’s holding leaders accountable before Stumpf testifies to the House Financial Services Committee, after government investigations found branch employees potentially created 2 million deposit and credit-card accounts without authorization.
The CEO faced withering questions from lawmakers on both sides of the aisle at a Senate hearing last week, a rare moment of bipartisanship.
“We are deeply concerned by these matters, and we are committed to ensuring that all aspects of the company’s business are conducted with integrity, transparency and oversight,” Stephen Sanger, the board’s lead independent director, said in the statement. “We will proceed with a sense of urgency but will take the time we need to conduct a thorough investigation.”
The bank already waited too long to start sanctioning top executives, said Isaac Boltansky, an analyst at Compass Point Research & Trading.
“It’s a dollar short and a day late,” he said. “Lawmakers will focus intently on this coming two days before a congressional grilling, therefore appearing to be more about optics than substance.”
A special panel of independent directors will lead the company’s re- view, working with the board’s human resources committee and the law firm Shearman & Sterling LLP, according to the statement. The investigation may lead to further compensation changes or employment actions, the company said.
That could include evaluating whether top executives including Stumpf should keep their posts, according to a person with knowledge of the panel’s deliberations, who asked not to be identified because they’re confidential.
Stumpf, 63, serves as both CEO and chairman after guiding Wells Fargo through the financial crisis, expanding mortgage lending while rivals retreated and adding Wall Street operations. Under his watch, the firm generated returns that were the envy of the industry and turned it into the world’s most valuable bank — a crown it ceded to JP Morgan Chase & Co. as the scandal widened this month.
Stumpf’s forfeiture dwarfs the $19.3 million he was awarded for his work in 2015. It’s also a much stiffer price than what JP Morgan CEO Jamie Dimon paid when his board found he bore “ultimate responsibility” for botched trades in a London office that lost more than $6.2 billion. In that case, directors cut Dimon’s 2012 pay in half to $11.5 million.
But there also have been costlier deals for CEOs. In 2007, for example, former United Health Group Inc. CEO William W. McGuire agreed to give up more than $600 million of benefits after investors claimed that he received improperly backdated stock options.