Scottish Daily Mail

Trusted bank that bullied staff into opening two million fake accounts

. . . and why it’s triggered panic in British boardrooms

- by Ruth Sunderland

WHEN Lehman Brothers and Northern Rock collapsed, RBS and Lloyds plunged to the brink, and the entire financial system ground to a halt – there was one bank that seemed to sail through the crisis.

Wells Fargo, one of the oldest banks in America, came through the recession with a reputation for sensible lending and borrowing. It rose to become the most valuable bank in the US.

That seemed only fitting for an institutio­n which was founded in 1852 and whose stagecoach pony express across the Wild West became a thing of legend – guarded by the likes of lawman Wyatt Earp.

But now its good name for prudence and security has been destroyed in days.

Wells Fargo has been engulfed in a scandal that saw it hit with a £142m fine, ordered to pay £3.8m in redress and sack 5,300 staff.

Employees have been caught opening 2m current accounts and credit cards in customers’ names without their knowledge.

The giant scale of the deceit, caused by the crooked sales culture incentivis­ed by head office, is a warning to banks across the globe about the toxic nature of commission and other incentives.

yesterday, the bank’s chief executive and chairman, John Stumpf, who was paid £14.6m last year, agreed to give up £35m in bonuses and is now effectivel­y working for free. Its head of retail operations, Carrie Tolstedt(pictured), left the bank without a payoff and has given up £14.6m in bonuses.

Despite these sacrifices, the scandal continues to roll on. The firm’s share price is down by a fifth – and customers hit by the scandal are expected to start their own legal action.

It will awaken uneasy thoughts in the mind of Antonio Horta-Osorio, the embattled chief executive of Lloyds Banking Group.

The worst behaviour uncovered so far in the UK was at the bank he leads.

Lloyds was fined more than £28m in 2013 for ‘serious failings in the systems and controls’ over incentives for sales staff – in other words, seriously aggressive sales practices – and has run up a huge bill for mis-selling PPI loan insurance.

The high street lender ran a toxic regime that saw incentives including champagne, Christmas hampers and ‘a grand in the hand’ for staff who hit their goals. Those who failed were kicked down the pay scale, which ranged from just over £18,000 to more than £72,000.

Behaviour like this was meant to have been consigned to the dustbin on both sides of the Atlantic. Now many bank bosses are nervously running an eye over their own practices for fear of similar scandals.

Wells Fargo is entrenched in American folklore. It is probably the only financial institutio­n to have a film named after it – a 1937 Oscar-nominated movie about a bank manager who leads a stagecoach packed with money across the Wild West. Indeed, Wells Fargo’s green treasure boxes, made from oak, iron and Ponderosa pine, are a famous symbol of its safety.

English-born Charles Bowles, better-known as ‘Black Bart’, went down in the annals of the Wild West as the gentleman outlaw because he robbed Wells Fargo stagecoach­es and left poems behind for his victims.

TODAy, the bank’s reputation faces its greatest threat ever – and what is angering customers the most is that, so far, there has been no legal retributio­n at the top.

While 5,300 have lost their income, Stumpf remains in charge. The silverhair­ed boss who looks more like a kindly grandad than a ruthless financial executive holds shares of more than £153m, according to US reports.

The woman who ran the division which set up the phantom accounts, Tolstedt, 56, will retire after what the company called a ‘long and successful career’ with shares and options estimated to be worth more than £69m.

The bank made more than £15bn in 2015. But these profits – and the rich rewards they have yielded for executives – have come in large part from hounding ordinary staff to hit relentless sales targets. Employees were under intense pressure and pestered incessantl­y.

One branch manager told how in 2012 she became a star performer and won an all-expenses paid trip to Disney World, along with 300 other supposed high achievers.

But even back then, she became dismayed at how the culture of the bank was changing. Suddenly the sales targets at her small branch in Pennsylvan­ia were set much higher. Staff were harangued by regional managers to hit them.

She told how she moved to a bigger branch in a nearby city, only to find staff were supposed to make 100 phone calls, plus sell seven new current accounts and 42 other products in a day. The targets were almost impossible to hit and she said that meant the bullying and intimidati­on got worse.

Managers checked sales up to four times a day to see if staff were hitting their quotas. Some were so desperate they spent holidays bombarding friends and family with requests to sign up for accounts.

An initiative called ‘Gr-eight’ was introduced where staff had to sign up each account holder to at least eight products – a target that often proved impossible to meet by legitimate means.

As a result, staff feared for their jobs and bent the rules: they set up fake accounts in customers’ names in a bid to hit targets and make commission­s.

It became so elaborate they funnelled money through them to make it appear as though customers were making transactio­ns, which would add to the employee’s income.

‘They warned us about this type of behaviour and said, “you must report it,” but the reality was that people had to meet their goals,’ Khalid Taha, a former Wells Fargo personal banker said. ‘They needed a paycheck.’

The unscrupulo­us sales practice became so endemic it spawned a vocabulary of its own.

‘Pinning’ meant issuing PINs without the consent of customers, often 0000. This enabled staff to enrol customers for online banking using fake email addresses and thereby notch up a sale.

‘Bundling’ was the term used when customers were told they could only have a service they wanted if they signed up for a basket of others, whether they wanted them all or not. Lots of types of products could therefore be bundled together and sold.

‘Sandbaggin­g’ meant holding back someone’s genuine sales applicatio­n until a time that was beneficial for the employee, typically when a new sales reporting period came in.

Applicatio­n forms would often be stockpiled until the New year, when the ‘Jump into January’ programme – imposing even tougher targets – would be introduced.

As for customers, they ran up millions in charges and fees on these ghost accounts.

Worse, some found their credit records were marred or fell prey to debt collectors after overdrafts which they never knew existed were run up on bogus accounts.

The bank, according to a legal complaint filed by the State of California, had ‘engineered a virtual fee-generating machine through which its customers are harmed, its employees take the blame and Wells Fargo reaps the profits’. The bank has now scrapped all sales targets. It says its ‘entire culture’ is based on doing what is right for customers and that when it makes mistakes, it takes responsibi­lity. But as critics point out, if one or two employees at a bank behave badly, it is the fault of the individual­s – but when more than five thousand people are sacked for improper sales practices, it can only be the fault of the bank. Last week Stumpf testified before a Senate Banking Committee and said he was ‘deeply sorry’. He said: ‘There is no question with some of our customers we violated trust. I accept full responsibi­lity for all unethical sales practices.’ Today, Stumpf appears before politician­s again to explain the scandal. Handing over his bonus is a clear attempt to see off anger. But after the outrage of the financial crisis, where no bank head suffered significan­t retributio­n for destroying faith in the financial system, calls are growing for him to face legal action. If that happens it could be a warning to bankers on both sides of the Atlantic that they must be held accountabl­e for scandals that happen on their watch.

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 ??  ?? ‘Deeply sorry’: Boss John Stumpf was forced to testify
‘Deeply sorry’: Boss John Stumpf was forced to testify

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