Scan­dal is still dog­ging Wells Fargo

The Idaho Statesman (Sunday) - - SPORTS - BY JAMES RU­FUS KOREN Los An­ge­les Times

More than two years af­ter Wells Fargo & Co. said it had cre­ated per­haps mil­lions of unau­tho­rized cus­tomer ac­counts, the scan­dal ig­nited by that ad­mis­sion has more than per­sisted – it’s spread, rais­ing ques­tions about how long

Chief Ex­ec­u­tive Tim Sloan can keep his place atop the trou­bled lender.

Crit­ics, no­tably Sen. El­iz­a­beth War­ren, D-mass., have re­peat­edly pushed the bank to fire Sloan, say­ing his 31-year ten­ure with the San Fran­cisco bank means he knew or should have known about prob­lems long ago. And calls for a new chief ex­ec­u­tive aren’t likely to die down given new de­vel­op­ments over the last year.

The bank has been hit with ad­di­tional fed­eral en­force­ment ac­tions, in­clud­ing a $1-bil­lion fine and an or­der to stop grow­ing un­til it can show it has ad­dressed its prob­lems. This spring, it ac­knowl­edged it had fore­closed on hun­dreds of home­own­ers af­ter im­prop­erly deny­ing them mort­gage mod­i­fi­ca­tions.

And last month the bank put two high-level ex­ec­u­tives on leave and re­moved them from a key lead­er­ship com­mit­tee, re­port­edly be­cause of pres­sure from reg­u­la­tors – po­ten­tially a sign that reg­u­la­tors be­lieve Sloan has not done enough to clean house since tak­ing over the top post shortly af­ter the scan­dal broke in Septem­ber 2016.

The bank has said only that Chief Ad­min­is­tra­tive Of­fi­cer Hope Hardi­son and Chief Au­di­tor David Ju­lian were on leave be­cause of “pre­vi­ously dis­closed on­go­ing re­views by reg­u­la­tory agen­cies in con­nec­tion with his­tor­i­cal re­tail bank­ing sales prac­tices.”

Now, with Democrats win­ning con­trol of the House of Rep­re­sen­ta­tives, and

Wells Fargo critic Rep. Max­ine Wa­ters ex­pected to take over as chair of the House Fi­nan­cial Ser­vices Com­mit­tee, an­a­lysts say it’s likely Sloan will be called to tes­tify be­fore that panel.

As with for­mer CEO John Stumpf – who stepped down shortly af­ter a pair of bruis­ing Capi­tol Hill ap­pear­ances weeks af­ter the bank was hit with a $185-mil­lion fine over

the unau­tho­rized ac­counts – a new round of con­gres­sional hear­ings could help de­cide Sloan’s fate, said Ed Mills, a pub­lic pol­icy an­a­lyst at fi­nan­cial ser­vices firm Ray­mond James.

“I think the wild card here re­ally is if and when that hear­ing comes,” Mills said. “Un­less you show up and are able to go on the of­fen­sive and come through with a solid per­for­mance that reestab­lishes con­fi­dence in you from in­vestors, Congress and the reg­u­la­tors, then you’re prob­a­bly go­ing to be forced to make ad­di­tional changes.”

Rum­blings about

Sloan’s po­ten­tial ouster started in Septem­ber, when the New York Post re­ported that the bank’s board had tried to re­cruit for­mer Gold­man Sachs ex­ec­u­tive and Trump ad­min­is­tra­tion eco­nomic ad­viser Gary Cohn as a po­ten­tial re­place­ment for Sloan. Wells Fargo Chair­woman Betsy Duke de­nied the re­port and said Sloan had the board’s sup­port.

In re­sponse to ques­tions from the Los An­ge­les Times last week about Sloan’s ten­ure, Wells Fargo spokes­woman Arati Ran­dolph said the chief ex­ec­u­tive has made a bevy of changes at the bank and re­mains com­mit­ted to im­prov­ing its prac­tices.

“Un­der his lead­er­ship, the com­pany has com­pleted a num­ber of com­pre­hen­sive third-party re­views and made fun­da­men­tal changes to re­tail sales prac­tices,” she said in a state­ment. “Tim is com­mit­ted to trans­parency and is fo­cused on closely ex­am­in­ing our com­pany, fix­ing is­sues we find, and mak­ing things right for our stake­hold­ers.” Wa­ters told The Times this month that she ex­pects to meet with Sloan to dis­cuss the bank’s on­go­ing prob­lems and that, af­ter that, hear­ings are pos­si­ble. “Wells Fargo has emerged with the kind of prob­lems that lead ev­ery­one to won­der what is go­ing on over there,” she said.

Al­though a bad per­for­mance could hurt

Sloan per­son­ally, it could have even greater im­pli­ca­tions for the bank – in­clud­ing an ex­ten­sion of the as­set cap or­dered by the Fed in Fe­bru­ary.

Be­fore it lifts the as­set cap, the Fed­eral Re­serve board must hold a for­mal vote on the mat­ter – some­thing Fed Chair­man Jerome H. Pow­ell agreed to af­ter pres­sure from War­ren. Mills said the prospect of such a vote go­ing Wells Fargo’s way, at least in the short term, seems less likely if the Fi­nan­cial Ser­vices Com­mit­tee reen­gages in hear­ings or in­ves­ti­ga­tions.

“No reg­u­la­tor wants to go be­fore a com­mit­tee and ex­plain why they’re let­ting the bank off the hook,” Mills said. “In pol­i­tics, one of the first lessons I learned is when you’re ex­plain­ing, you’re los­ing.”

Po­lit­i­cal cal­cu­lus aside, there may be plenty of rea­sons for the bank’s board to leave Sloan in place for now. Nearly all of the bank’s rev­e­la­tions over the last two years re­late to prac­tices that were in place be­fore Sloan be­came CEO, said Robert Hock­ett, a Cor­nell law pro­fes­sor and ex­pert on fi­nan­cial reg­u­la­tion.

Jef­frey Son­nen­feld, an as­so­ciate dean at Yale School of Man­age­ment, said pres­sure to re­move Sloan is mis­guided.

Tim Sloan

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