Wells Fargo Knew About Fake Account Problem For 15 Years

Posted April 20, 2017

Following the revelations last summer that thousands of Wells Fargo employees fraudulently opened two million unauthorized accounts for customers, the bank released a report Monday detailing the findings of its board's investigation into the problems, and the consequences it imposed as a result. As NPR reports, the bank now says it has "recovered more than $180 million in executive compensation over the scandal" - roughly the amount of total fines imposed on Wells Fargo by CFPB a year ago.

The board's report, which detailed the results of an internal investigation that began in September, focused on sales practices and incentives at Wells Fargo's community bank unit that led to the creation of fake customer accounts, along with monitoring problems that the bank's "decentralized corporate structure" caused.

The report singles out Tolstedt for allegedly having been "insular and defensive" and having "effectively challenged and resisted scrutiny from within and outside" her community banking division.

Tolstedt declined for an interview and she rejected the conclusion revealed by the board.

"We accept the Board's findings as a critical part of our journey to rebuild trust", Wells Fargo CEO Tim Sloan said in a statement.

Meanwhile, the board could find nothing worse to say about Stumpf than that he "was by nature an optimistic executive" who "nonetheless moved too slowly to address the management issue".

Along with an earlier round of punishments of the two executives, Wells Fargo has clawed back a total of $69 million from Stumpf and $67 million from Tolstedt.

Institutional Shareholder Services, which advises big investment firms on corporate governance issues, recommended Friday that shareholders vote against the election of 12 of the bank's 15 board members, including Sanger, at the bank's upcoming annual meeting.

The bank has already paid $185 million in fines to federal and local authorities and settled a $110 million class-action lawsuit.

In addition to clawing back compensation from Stumpf and Tolstedt, the bank on February 28 reduced compensation for eight current executives by $32 million, including eliminating 2016 bonuses and halving 2014 performance payouts.

It doesn't appear Tolstedt, already one of the retail banking division's most senior executives, received that warning, according to the report. "His commitment to them colored his response when sales-practice issues became more prominent in 2013 and subsequent years". However, many employees "left due to their concerns" over the scandal or because of the bank's stratospheric sales goals.

Sloan, who replaced Stumpf as CEO, appears to have emerged from the investigation largely unscathed. On Monday, the Washington Post reported that the bank's internal report had been completed and it was pretty damning: Not only will two executives have to return $75 million in compensation, but the report determined that the bank knew about the fake account epidemic all the way back in 2002. McKinsey's performance was an outstanding demonstration of the worthlessness of management consultants: The firm produced a 402-page report that the Shearman investigators say "identified the need to "manage.the risks associated with sales, '" but "without further description of the actual problems".

"When you violate your code of ethics at Wells Fargo, you don't have an opportunity to come back", Sloan said. "Wells Fargo is trying to get this behind them, but there's only so much they can do".

We have also retained independent third parties to provide their advice and feedback to help us identify possibilities for additional improvements across the company.

News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

Sloan promised that the tactics and pressure that hurt employees, customers and the Wells Fargo reputation "will never be allowed to occur again".

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The board also found that Tolstedt actively worked to downplay any problems in her division.