Wells Fargo says 2 ex-leaders owe bank $75 million
Forced return of pay, stock grants largest in Wall Street history
Wells Fargo’s board said on Monday that it would claw back an additional $75 million in compensation from the two executives on whom it pinned most of the blame for the company’s scandal over fraudulent accounts: the bank’s former chief executive, John Stumpf, and its former head of community banking, Carrie Tolstedt.
The clawbacks — or forced return of pay and stock grants — are the largest in Wall Street history and among the largest in corporate America, according to the four-person committee of Wells Fargo’s directors that investigated the extensive fraud.
Wells Fargo’s board said the former chief executive Stumpf had turned a blind eye to the fraudulent accounts being created under his nose, while Tolstedt, who ran the branch system, had focused obsessively on sales targets and withheld information from her boss and the board.
Wells Fargo’s misdeeds, which came to light in September, have at least temporarily become a more widely recognized symbol of the bank than its signature stagecoach. Bankers across Wells Fargo’s giant branch system were tacitly encouraged to meet their sales goals by committing fraud; opening unwanted or unneeded accounts in customers’ names; and, sometimes, moving money in and out of the sham accounts from legitimate ones.
While the amount of money customers lost was relatively small — the company has refunded $3.2 million — the scope of the fraud was huge:
5,300 bankers were fired for creating as many as 2 million unwanted bank and credit card accounts. In one detail revealed by the report, one branch manager had a teenage
daughter with 24 accounts and a husband with 21, the board found.
The warning signs were glaring and could be traced back at least to 2004, the investigators said. Tolstedt, who ran the national network of Wells Fargo branches, set up ruthless sales goals that even she acknowledged were unreachable. Stumpf, who had a long and trusting relationship with Tolstedt, left her on her own to run her department, the investigators said in a scathing 113-page report.
Neither Tolstedt, who was allowed to retire in July but was subsequently fired, nor Stumpf, who was permitted to retire in October after being
castigated during congressional hearings on the scandal, was available on Monday for comment. Stumpf cooperated with the board’s investigation; Tolstedt declined to be interviewed.
All told, Stumpf will surrender $69 million, and Tolstedt will lose $67 million, including stock options that they forfeited last year. While those figures are bigger than any previous bank clawback, they fall far short of the largest clawback in corporate history. In 2007, William W. McGuire of UnitedHealthGroup was forced to give back $618 million over backdating options.
Tolstedt’s lawyer, Enu Mainigi of the Washington firm Williams & Connolly, issued a statement challenging the board’s findings.
“We strongly disagree with the report and its attempt to lay blame with Ms. Tolstedt,” Mainigi said. “A full and fair examination of the facts will produce a different conclusion.”
The board’s report, compiled by the law firm Shearman & Sterling after interviews with 100 current and former employees and the review of 35 million documents, said that it was obvious where the problems lay. Structurally, the bank was too decentralized, with department heads like Tolstedt given the mantra of “run it like you own it” and granted broad authority to shake off questions from superiors, subordinates or lateral colleagues.
Many suspicious things should have added up, the report said. Customers were failing to fund, or put money into, their new accounts at alarming rates. Regional managers were imploring their bosses to drop sales goals, saying they were unrealistic and bad for customers.
Stumpf was warned as early as 2012 about “numerous” complaints about the company’s sales tactics — from both customers and employees — but he ignored growing evidence that the problem was pervasive, the board said in its report.
Much of the pressurecooker climate, the report said, stemmed from Tolstedt, who led Wells Fargo’s retail branch network for eight years.
The report casts her as a powerful and insular leader who set unreasonable targets, castigated those who criticized them and actively ignored signs that some managers and employees were cheating to meet them.
“She resisted and rejected the near-unanimous view of senior regional bank leaders that the sales goals were unreasonable and led to negative outcomes and improper behavior,” the report said.
Timothy Sloan, who succeeded Stumpf as chief executive, was largely exonerated by the report, even though he was also a career Wells Fargo executive. As president and chief operating officer, he became Tolstedt’s immediate supervisor in November 2015. At that point, the report said, he “assessed her performance over several months before deciding that she should not continue to lead the community bank.”
Stumpf, who retired in October, exercised all of his remaining options and converted them to stock — which he retained — in the months before Wells Fargo announced its $185 million settlement in September with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles city attorney. He held 2.5 million shares as of late February, currently valued at $137 million.