Cole Quoted in Bloomberg

Stumpf’s Pay Cut Eclipsed by Fury as Yellen, State Join In 

Wells Fargo & Co. Chief Executive Officer John Stumpf gave up $41 million to buy a reprieve from the bank’s widening scandal. Then it got worse.

The company was battered anew by regulators and politicians throughout Wednesday, less than 24 hours after Stumpf agreed to forgo years of stock awards to quell public uproar over the bank’s unauthorized creation of customer accounts. Lawmakers called the CEO’s payment a first step. Federal Reserve Chair Janet Yellen vowed to probe a “disturbing” pattern of misconduct at big banks. California barred the firm from handling bond deals for the state.

“Wells Fargo’s venal abuse of its customers by secretly opening unauthorized, illegal accounts illegally extracted millions of dollars,” California Treasurer John Chiang said in a news conference in San Francisco. “This behavior cannot be tolerated and must be denounced publicly in the strongest terms.”

The worsening backlash raises the stakes for Stumpf as he prepares to testify Thursday before the House Financial Services Committee. His decision to return compensation won’t affect the panel’s scrutiny of the bank, said a spokesman for the committee’s chairman, Texas Republican Jeb Hensarling. Senators already thrashed the CEO at a hearing last week, with Elizabeth Warren calling him a “gutless” leader and demanding he resign.

“I don’t know that giving back the money saves his job,” said Ralph Cole, a money manager at Portland, Oregon-based Ferguson Wellman Capital Management Inc., which sold most of its Wells Fargo stake earlier this year and now owns about 100,000 shares. “Maybe they won’t be satisfied until they have his head.”

Unanswered Questions’

Chiang, a Democrat who’s running for governor in 2018, urged other states to follow suit as he banned Wells Fargo from underwriting state debt and handling its banking transactions for 12 months. Chiang, 54, also threatened a “complete and permanent severance” of business with the firm if it doesn’t change practices.

Yellen, appearing before the House committee, declined to respond to the most heated questions about Wells Fargo -- such as whether it’s too large to manage -- but promised “a comprehensive look at the biggest banks.”

“There are still dozens of unanswered questions,” Senator Sherrod Brown, an Ohio Democrat, said in a statement after Stumpf’s forfeiture was announced. “We still don’t know how many customers were harmed and how long this fraud continued.”

Investor Silence

Still, the political reaction contrasts with that of investors, which analysts have said hold the greatest sway over Stumpf’s fate. None of the bank’s biggest shareholders has publicly asked for him to step down. Berkshire Hathaway Inc.’s Warren Buffett, who controls a 10 percent stake in the bank, has said he won’t comment on the situation until November.

For now, pressure from shareholders is mostly coming from public pensions and organizations such as CtW Investment Group, which speaks for a consortium of retirement funds managing more than $200 billion. It urged the board last week to reclaim pay and add more directors with expertise in employee incentives.

The two largest U.S. public pension funds -- the $304 billion California Public Employees’ Retirement System and the $193 billion California State Teachers Retirement System -- said they’re engaging with the bank on governance issues. Calstrs, for example, will “seek engagement on their board structure, their compensation structure including incentives and a discussion of their actions on potential clawbacks,” according to spokesman Ricardo Duran. It held $1.1 billion in Wells Fargo shares and fixed-income securities as of June 30.

After guiding the firm through the financial crisis, Stumpf generated shareholder returns that were the envy of the industry. Even after ceding its crown this month as the world’s most valuable bank, Wells Fargo’s stock has one of the highest price-to-book values in the industry. The shares rose 0.5 percent to $45.31 on Wednesday.

The forfeiture may yet buy Stumpf more time to defuse the political uproar. The company will probably “be able to manage through the scandal with the current executive team intact,” KBW analysts led by Brian Kleinhanzl wrote in a note.

Inadequate Steps

During last week’s Senate hearing, members of both parties scolded Stumpf for blaming the unauthorized accounts on low-wage branch workers, who have said they were struggling to meet unrealistic sales goals.

Stumpf, 63, told employees in a memo on Tuesday that he was too slow to respond to signs of misconduct. He said he voluntarily surrendered the millions in unvested stock and that the board accepted.

It equates to about one-sixth of the $249 million in compensation Stumpf has taken home since he was tapped as CEO in 2007, according to data compiled by Bloomberg from regulatory filings. That figure includes salary, bonuses and the value of vested stock awards and exercised stock options. The equity awards he’s forfeiting would have come on top of it.

Former community banking chief Carrie Tolstedt will forgo about $19 million in unvested stock. And neither Stumpf nor Tolstedt will get a bonus for this year.

“These are important first steps,” Warren said in a statement. “But I do not believe these actions are adequate.” She asked the board to brief her office on its decisions and review.

Board Review

Wells Fargo’s board said its independent directors will lead a company investigation into the matter, working with the human resources committee and the law firm Shearman & Sterling LLP. The inquiry may result in further compensation changes or employment actions, the company said.

That could include evaluating whether top executives such as Stumpf should keep their posts, according to a person with knowledge of the panel’s deliberations.


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