After scandal, Wells ending sales goals
Wells Fargo, battling outrage over revelations that 5,300 branch employees were fired for opening accounts without customers’ knowledge, said Tuesday it will eliminate all product sales goals in retail banking, effective Jan. 1.
Meanwhile, the San Francisco bank’s top executives tried to lay blame for the fiasco on underperforming employees.
“The people we’re talking about here were not the high performers,” Wells Fargo Chief Financial Officer John Shrewsberry said at a Barclays Global Financial Services conference in New York Tuesday. He added: “It was people trying to meet minimum goals to hang onto their jobs, that’s my take, it’s performance management.”
In an interview with the Wall Street Journal, John Stumpf, the bank’s CEO, also seemed to blame employees who wouldn’t “honor” the bank’s culture. “There was no incentive to do bad things,” he was quoted as saying.
In a live interview later Tuesday with James Cramer on CNBC, Stump said, “I’m responsible. I’m accountable” anytime something goes wrong at the bank.
Stumpf is scheduled to answer questions about the allegations at a Senate Banking Committee hearing on Tuesday.
Eliminating sales goals calls into question the bedrock of Wells Fargo’s retail banking strategy. For decades, it has focused on “cross-selling,” or getting customers to open multiple deposit, loan and investment accounts.
“Every bank in the world wants to cross-sell, (but) it was heavily emphasized at Wells Fargo,” said Piper Jaffray analyst Kevin Barker.
Ending sales goals “will have an incremental impact on their fee income over a longer period of time. In the near term, it’s tough to see how the impact will really play out. Suddenly you may see fee income growth stagnate,” Barker said.
Fees from checking and savings accounts, credit cards, mortgage, investment and other accounts made up about 40 percent of Wells Fargo’s 2015 revenue, Barker said. About 53 percent was interest income and the rest came from insurance brokerage, trading profits and other sources.
Wells is probably waiting until January to eliminate sales goals to gain time to come up with an alternative incentive system for its 100,000 branch employees. “Plan A is to stop cross-selling. What they don’t really have is a Plan B,” said Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods.
In the CNBC interview, Stumpf said Wells is not abandoning cross-selling. “We still love cross-selling,” he said. It’s just that one of the tools “doesn’t make sense anymore.”
Wells Fargo’s stock price has fallen 5.6 percent since Wednesday, about twice the drop in the Standard & Poor’s 500 index.
On Thursday, state and federal regulators announced that Wells had agreed to pay a total of $185 million in fines and penalties to settle charges and potential charges that its employees, “spurred by sales targets and compensation incentives,” secretly opened more than 2 million deposit and credit card accounts without customers’ knowledge.
Shrewsberry said the $185 million “was fully accrued for at the end of the second quarter,” which ended June 30. The bank has refunded about $2.6 million in fees to customers on about 115,000 accounts that might have been unauthorized.
Of the 5,300 fired, Shrewsberry said that about 10 percent “are people that you consider to be managers, including store managers and higher.” The bank has refused to reveal the highest-level person fired.
In July, Wells Fargo announced that Carrie Tolstedt, the senior executive who headed its retail branch network, “has decided to retire at year’s end after a long and successful career.” She was succeeded July 31 by Mary Mack. On Monday, Fortune reported that Tolstedt is entitled to $124.6 million in stock, options, and restricted Wells Fargo shares. The Financial Times put the value of her stock package, accumulated over 27 years, at $93 million. Some critics have said Wells should claw back that money.
Shrewsberry said about two-thirds of the account problems occurred “in the Southwest,” and the peak was in 2013.
He said the bank has already made changes to performance expectations, putting greater priority on customer service, loyalty and ethics. And today, when an account is opened, customers get a welcome email within an hour — so they know it was opened.
However, Kleinhanzl wonders why it took so long to change the sales goals. “If you knew your compensation structure was a problem three years ago, why are you making this change today?”