Wells CEO should go

The head of Wells Fargo, fourth largest bank in the country, thought he was correct in telling a U.S. Senate committee that creation of possibly 1.5 million unauthorized customer accounts by employees was “not a material event” that had to be disclosed to shareholders. He was arrogantly wrong.

On what planet is CEO John Stumpf living that he thinks knowledge of such odious chiseling — which the bank says it couldn’t stop — wouldn’t trash the bank’s reputation? Sounds material here.

Stumpf’s appearance before the Banking Committee contained assertions of ignorance and not-my-job excuses. He had no idea “why people did this” but the 5,300 employees fired over the past seven years were guilty of “dishonesty.” Recently he blamed the affair on employees — a good sign of arrogance.

Employees — perhaps pressed by bosses — clearly created accounts to win incentive awards for getting existing customers to buy additional services.

Such scamming (which persisted for three years despite concerted efforts to stop it after the Los Angeles Times disclosed it in 2013) was bound to ignite the publicity hunger of politicians once fines of $185 million by regulatory agencies were announced this year. A bipartisan committee scorching of Stumpf last Tuesday resulted.

The Wall Street Journal reported on the essential figures. An audit estimated that of 82 million deposit accounts opened from 2011 to 2015, 1.5 million, along with more than 500,000 credit card accounts, were fraudulent. The two kinds of accounts generated $2.6 million in fees.

That’s under-the-cushions money for a bank with $1.75 trillion in assets and annual profit of $23 billion. It may have seemed trivial to Stumpf, but in financial reporting, materiality is more than a number. It’s a judgment (by auditors) of the point above which an investor could be misled about the state and course of the business. This seemed to escape Stumpf.

Stumpf should quit. His 2015 pay of $19.3 million should pay the rent for a while.