Wells Fargo's move late Tuesday to strip its chief executive of $41 million in compensation after a sales scandal did little to temper criticism of the company, as the megabank faced new sanctions from authorities in California.
The decision to take back thousands of shares of unvested stock from John G. Stumpf is the first time a high-ranking banking industry executive has personally faced such a steep penalty for company misdeeds since the 2008 financial crisis.
But, critics say, Wells Fargo is leaving its long-time CEO with more than $100 million in company stock and millions in salary he earned while thousands of mostly low-level employees were setting up unauthorized accounts customers didn't ask for in order to reach aggressive sales goals.
On Wednesday, California Treasurer John Chiang imposed sanctions on the San Francisco-based bank, saying the state would not invest in the firm's stock or use many of its services for a year.
“Wells Fargo’s fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed,” Chiang said in a statement.
“How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?”
In a statement, Wells Fargo said it understood the concerns being raised and took full responsibility. “Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California," the statement said.
The bank's action against Stumpf failed to satisfy Sen. Elizabeth Warren (D-Mass.), who blistered the executive during his appearance before the Senate Banking Committee last week, even calling for him to resign. On Wednesday, she suggested he still had not been punished enough.
Stumpf "will be just fine: he keeps his job & most of the money he made while massive fraud went on under his nose," Warren said in a Twitter post.
Stumpf is likely to come in for more criticism Thursday, when he testifies before the House Financial Services Committee on Thursday. In testimony that closely mirrors what he told the Senate last week, Stumpf plans to apologize to customers and the American public for the scandal and note extensive steps the bank has taken to prevent such misdeeds in the future.
"Wrongful sales practice behavior goes entirely against our values, ethics, and culture and runs counter to our business strategy of helping our customers succeed financially and deepening our relationship with those customers," he said, according to written testimony obtained by The Washington Post.
But that is not likely to be enough for committee members who have requested in-person interviews with four additional Wells Fargo officials: John R. Shrewsberry, the company's chief financial officer; Timothy J. Sloan, the chief operating officer and president; Michael J. Longhlin, the chief risk officer; and Carrie Tolstedt, the head of community banking. Those four executives are expected to meet with committee staff members in October. Tolstedt was also subject to a $19 million clawback and will retire.
"We continue to expect this hearing to be even more contentious, lengthy, and uncomfortable than last week's Senate hearing as the nearly 60 members of the House committee stretch to secure their sound bite," said Isaac Boltansky of Compass Point Research & Trading said in a research note.
As I said last week: Mr. Stumpf should resign, return every nickel he made while this scam was ongoing, & face SEC & DOJ investigations.
— Elizabeth Warren (@SenWarren) September 28, 2016
.@WellsFargo CEO Stumpf will be just fine: he keeps his job & most of the money he made while massive fraud went on under his nose.
— Elizabeth Warren (@SenWarren) September 28, 2016
Earlier this month, Wells Fargo acknowledged that it had fired 5,300 workers over five years for setting up accounts customers didn't ask for in order to meet sales goals. In some cases, customers ended up being charged fees for accounts they did not know they had. Even though Wells Fargo agreed to pay a $185 million fine, lawmakers and regulators are now examining the company's internal response to the scandal, including why, at least initially, no senior executives were held personally responsible for the scheme. The company's independent board members have also launched an investigation into the case and have said that more clawbacks could follow.
The case has re-ignited frustration from consumer advocates about the eye-popping salaries that permeate Wall Street and the reluctance and difficulty of getting any of that money back when an institution runs afoul of regulators. Lawmakers began pushing the use of clawback measures in 2002 after a rash of high-profile corporate and accounting scandals, including the collapse of Enron and Worldcom. That effort was amplified after the financial crisis with the passage of Dodd Frank Act, the 2010 financial reform legislation when bankers were accused of making risky bets in order to earn large bonuses.
But the latest set of rules are already five years late and banking officials are fighting the proposals, which they say will hurt the industry's ability to compete for talent. Clawbacks still remain a measure of last resort -- particularly when it comes to senior executives, legal experts said. Even when in 2012, JPMorgan Chase lost $6 billion in a single trade, in a case involving a trader known as the "London whale," its chief executive, Jamie Dimon saw his salary cut in half to about $11 million, but no previously awarded income was clawed back.
"Boards are reluctant to invoke clawbacks. They like to keep CEOs happy. They are most likely to invoke them against people who are ex-CEOs," said Erik Gordon, a law professor at the University of Michigan in Ann Arbor. "The Wells Fargo board invoked clawbacks after the bank took a public beating in Congress and just before it was scheduled to take another, probably more severe beating."
The way the penalty was structured in Wells Fargo case appeared to minimize the damage for Stumpf, some legal experts said. The unvested stock he will forfeit may currently be worth $41 million but could have been worth less in the future when he was able to cash them in, they said. He will also forfeit his salary while an independent committee conducts an investigation into the company's board.
"It is not the same as paying a penalty and taking the money out of your pocket," Gordon said.
In a letter titled "An important step forward: Executive accountability" on Wednesday, Stumpf thanked Wells Fargo's employees for their support. Stumpf said he had recommended giving up the $41 million in unvested stock and the company's board agreed, according to the letter obtained by The Washington Post. He also said he supported the other moves the board was taking, including the independent investigation.
"I fully support these decisions, because I know they are right and they are necessary, especially as we prepare to re-recruit every one of our key stakeholders – customers, investors and the communities we serve, and most importantly, you, our team members," the letter said. "We have weathered many storms over our 164-year history. We will weather this one, too."
Jena McGregor contributed.