State official turns up heat on Wells
Every time Wells Fargo CEO John Stumpf opens his mouth, it seems to cost him and his company money.
On Wednesday, California State Treasurer John Chiang announced that Stumpf ’s testimony at a Senate committee last week had angered him so much that the state was suspending Wells Fargo from underwriting bonds and purchasing other investments on behalf of taxpayers for a year.
So Stumpf ’s testimony before the House Financial Services Committee on Thursday about the bank’s fraudulent sales practices will hold far more importance than usual.
Recent revelations that employees had created as many as 2 million fake accounts in the names of real customers without their knowledge or consent have angered officials and consumers across the country.
Chiang signaled that he will ask other states to take similar steps to cut their business with the San Francisco bank, given what he called Stumpf ’s poor response to the crisis. He said Stumpf ’s testimony before the Senate Banking Committee, in which he tried to walk the line between accepting responsibility and saying
that the problem lay with rogue employees rather than the bank’s overall culture or top executives, was the deciding factor in punishing Wells.
Critics have long said Wells Fargo created an aggressive sales culture that forces employees to sell products to consumers that they don’t need. Of the 5,300 employees the company has fired in connection to the scandal, over 95 percent were lower-level branch workers like tellers.
“We want actors to act with humility,” Chiang told reporters during a news conference at City Hall in San Francisco. Stumpf ’s Senate testimony, he said, was “incredibly disheartening.” He also called for Stumpf ’s resignation.
“Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California,” the company said in a statement. “We certainly understand the concerns that have been raised.
“We are very sorry and take full responsibility for the incidents in our retail bank,” it continued. “We have already taken important steps, and will continue to do so, to address these issues and rebuild your trust.”
Stumpf ’s appearance before the House committee may offer him a second chance to soothe public anger and head off other states from following California’s lead. Stumpf is expected to announce Thursday that Wells will eliminate the practice of establishing retail sales goals as of Oct. 1. The company previously said it would do so by January.
But there’s only so much Stumpf can say, given the bank’s myriad of regulatory and legal troubles, said Richard Bove, an analyst with Rafferty Capital Markets.
Federal prosecutors in New York and San Francisco have opened criminal inquiries, a person familiar with the matter has said. Wells Fargo also faces a raft of lawsuits by fired or demoted workers, customers and investors. Congress is also pushing Federal Reserve Chairwoman Janet Yellen to punish the bank, perhaps forcing it to break up.
Anything that Stumpf says during his congressional testimony will be fodder for regulators and prosecutors, Bove said.
“It’s high-risk,” Bove said. “John Stumpf knows every aspect of the situation. But he cannot answer the questions they will probably ask him.
“And yet there’s an awful lot riding on it,” he said. “He’s walking down the center lane with people shooting at him from both sides.”
San Francisco last week removed Wells Fargo from a banking program for lowincome residents. Authorities including the U.S. Consumer Financial Protection Bureau fined Wells Fargo $185 million on Sept. 8 for the false accounts. On Tuesday, the bank said Stumpf would forfeit $41 million in pay.
Though Chiang declined to disclose how much money his actions will cost Wells Fargo, he said the impact will be significant. The state, which manages about $75 billion in investments, is the largest issuer of public debt in the nation.
“I think it does hurt Wells Fargo,” Bove said.
More important, California has opened up another worrisome front for Wells Fargo. In the past, major banks that faced possible sanctions from state regulators have successfully argued that federal agencies like the Office of the Comptroller of the Currency held proper jurisdiction over cases, Bove said.
California’s willingness to use its financial leverage over Wells Fargo shows it means business this time, he said.
Chiang also said he would use his board seat on the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to push for Wells Fargo to change its corporate governance practices. The pension funds hold about $2.3 billion in Wells Fargo stock.
He also wants the company to make sure the posts of CEO and board chairman are held by different people (Stumpf is both), appoint an independent ombudsman, create a whistleblower program and review the way the bank pays executives.
“We don’t want to see a decline in Wells Fargo,” Chiang said. “We want Wells Fargo to return to its storied history of serving customers. This is an enormous opportunity to effect change.”
In acting against Wells Fargo, Chiang is seizing an opportunity himself, politically. Bashing a big bank could help jump-start his fledgling 2018 California gubernatorial campaign.
While Lt. Gov. Gavin Newsom is the favorite in early polls and name recognition — and is fronting high-profile ballot measures in November to legalize marijuana and restrict the sale of ammunition and firearms — this kind of populist stance “could help position Chiang as an alternative to Newsom,” said David McCuan, a professor of political science at Sonoma State University.
“Going after big banks and income inequality resonates with voters,” McCuan said Wednesday. “This is smart politics — and smart populist politics.”
Nothing plays better in a Democratic primary “to the Bernie Sanders types than standing up to big business,” said Thad Kousser, a professor of political science at UC San Diego.
Additionally, “by using his office to get attention,” Kousser said, the move against Wells Fargo enables Chiang to do something to compete against “the star power of a Gavin Newsom” and other potential 2018 candidates like former Los Angeles Mayor Antonio Villaraigosa and billionaire San Francisco environmentalist Tom Steyer “without spending any campaign money.”