Wells Fargo chief Stumpf heads to Hill as pressure mounts

Reuters News
Posted: Sep 29, 2016 1:07 AM

By Lisa Lambert and Patrick Rucker

(Reuters) - Wells Fargo & Co <WFC.N> Chief Executive Officer John Stumpf returns to Capitol Hill on Thursday with his job under threat and the bank facing rising political pressure over a sales scandal that has become a major issue in Washington and on Wall Street.

Earlier this week, the bank took back $41 million in stock awarded to Stumpf, an unprecedented rebuke to a major U.S. bank CEO, but the move is unlikely to silence calls for his resignation. Investigators found that Wells Fargo's branch staff opened as many as 2 million unauthorized credit card and deposit accounts to meet sales quotas.

The affair has triggered lawsuits, more investigations and wiped more than $20 billion from the bank's market value.

On Wednesday, California, Wells Fargo's home state, suspended business relationships with the bank for a year and said it would work with the state's two giant public pension funds to change the management structure at the bank, including separating the roles of CEO and chairman.

The episode has been a stunning reversal for Stumpf, long regarded as a safe pair of hands in the industry for navigating Wells Fargo successfully through the financial crisis.

"I don't know that he will survive this. I don't think there's any way to come out of this with the same leadership," said Patricia Lenkov, CEO of Agility Executive Search.

Stumpf will appear before the House Financial Services Committee, his second congressional appearance in less than 10 days.

Thursday's hearing may be easier on Stumpf than the bipartisan tongue-lashing he took from the Senate Banking Committee on Sept. 20, when Senator Elizabeth Warren of Massachusetts called him a "gutless leader" who should be criminally investigated.

Warren said on Wednesday that Wells Fargo's decision to launch an internal investigation and claw back bonuses paid to Stumpf and Carrie Tolstedt, the former head of the retail division at the center of the scandal, were “important first steps,” but not enough.

"The reduced compensation represents only a fraction of the total pay and bonuses received by Mr. Stumpf and Ms. Tolstedt during the years that their compensation was based in part on inflated retail account growth and cross-selling success," she wrote in a letter to Wells Fargo's board of directors.

Andrew Duberstein at public relations firm Sard Verbinnen, which is representing the board, did not respond to requests for comment on the letter.

Warren, along with two other senators, called on the U.S. Securities and Exchange Commission to investigate the company, which is already under scrutiny by the Department of Justice, state Attorney General offices, and others.

Stumpf will tell lawmakers on Thursday that Wells Fargo will eliminate sales quotas for branch staff beginning Oct. 1, accelerating the plan from Jan. 1, according to prepared testimony he will deliver.

Federal regulators will also be in focus at the hearing.

House Financial Services Committee Chairman Jeb Hensarling has asked why bank executives did not act sooner, and on Thursday he said he would raise that point again.

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Speaking on CNBC television, Hensarling also said that while Stumpf's reduced compensation was "encouraging," lawmakers are probing upper management's role in the scandal, adding that shareholders would have to decide whether Stumpf should resign.

"We will hold him accountable for any violations of the law, civil and criminal," the Texas Republican said.

U.S. Federal Reserve Chair Janet Yellen promised the committee on Wednesday that the central bank will scrutinize all big banks in the wake of the Wells Fargo matter. Some Democratic committee members said it showed that some banks are too big to manage and should be broken up.

The most powerful Democrat on the committee, Representative Maxine Waters of California, said she has not reached that conclusion, and wanted to hear Stumpf first. She declined to say whether steps taken by Wells Fargo, including the $41 million clawback, were sufficient.

"We will ask some of the basic questions about how this fraud took place and why did it happen and whose decision it was," she said.

(Additional reporting by Ross Kerber in Boston; Writing by Dan Freed in New York; Editing by Carmel Crimmins and Jeffrey Benkoe)