WASHINGTON (CN) — An apology from the head of Wells Fargo did little Tuesday to quell Senate anger over the 2 million bogus accounts the bank opened in its customers’ names without their knowledge.
“I am deeply sorry that we failed to fulfill on our responsibility to our customers, to our team members and to the American public,” the bank’s chief executive officer, John Stumpf, said to a hostile Senate panel.
Sen. Elizabeth Warren, D-Mass., called Stumpf’s leadership “gutless” and asked for his resignation.
Stumpf, who said he made $19 million last year, told the panel he takes full responsibility for the scandal and wants to make it right by the bank’s customers. After his apology, however, Stumpf placed the blame on 5,300 low-level employees who opened the accounts, and who make $35,000 to $60,000 per year.
The CEO squarely denied executive orchestration of a companywide scheme to defraud its customers, though he acknowledged the 5,300 fired employees were scattered across the country, many of them concentrated in California, Arizona and New Jersey.
That did not sit well with members of the Senate Banking, Housing and Urban Affairs committee, who summoned the CEO for the tense hearing weeks after the bank reached a massive $185 million settlement in the case with the U.S. Consumer Financial Protection Bureau.
“This isn’t the work of 5,300 bad apples,” said Sen. Bob Menendez, D-N.J. “This is the work and the result of sowing seeds that rotted the entire orchard.”
Menendez blamed Stumpf and the bank’s other high-level executives for fostering a culture where deception and deceit could thrive.
After persistent questioning by Menendez, Stumpf said he “absolutely” told bank employees not to open accounts customers did not request, and did so many times.
People in charge of risk, sales efficacy and regional presidents have been held accountable, he said.
One of the most heated exchanges occurred between Stumpf and Warren, who challenged the CEO’s claims that he had held himself accountable.
“Have you resigned as CEO and chairman of Wells Fargo?” she asked.
“No, I have not,” Stumpf responded.
“Have you returned one nickel of the millions of dollars that you made while this scam was going on?” Warren continued.
“I will take that as a no,” she retorted after Stumpf made several attempts to dodge the question.
“Have you fired a single senior executive,” she asked, referring specifically to people who led the community banking and compliance divisions, not regional or branch managers.
“No,” he conceded.
“OK, so you haven’t resigned; you haven’t returned a single nickel of your personal earnings; and you haven’t fired a single senior executive,” she said. “Instead, evidently your definition of accountable is to push the blame to your low-level employees who don’t have the money or a fancy PR firm to defend themselves. It’s gutless leadership.”
Warren excoriated Stumpf over cross-selling under his tenure, a phenomenon of upselling customers, for which Wells Fargo is already well-known. Most banks average three accounts per customer, but Stumpf set the target at eight for Wells Fargo customers, Warren charged.
Stumpf denied the senator’s charge that cross-selling pumped up the bank’s stock prices, but Warren would not let him slide.
Quoting transcripts from 12 quarterly earnings calls from 2012 to 2014, Warren reminded Stumpf that he used the bank’s success at cross-selling as a sales pitch to investors and analysts.
“In all 12 of these calls, you personally cited Wells Fargo’s success at cross-selling retail accounts as one of the main reasons to buy more stock in the company,” she said.
“You squeezed your employees to the breaking point so they would cheat customers, and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket,” she said, not giving Stumpf a chance to respond.
“And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich.”
Warren then called for Stumpf’s resignation and a criminal investigation of his conduct by the Department of Justice and the Securities Exchange Commission, asserting that the possibility of jail time for Wall Street executives who preside over massive fraud is the only way to get true accountability.
In 2013, the Los Angeles Times reported that a culture of relentless sales goals at Wells Fargo had battered employees’ morale and led to ethical breaches – including opening unauthorized customer accounts to meet sales goals.
Stumpf told the Senate panel he first became aware of the extent of the fake accounts some time in 2013, but could not recall exactly when.
He said the bank will eliminate sales goals starting next year, and will look at bank records from 2009 and 2010 to determine whether the scheme was happening then, too. The bank now requires a signature to open a new account and will send an email to a customer within one hour of opening a new account for verification purposes, Stumpf said.
“It seems like it took an awfully long time to impose those sort of basic controls,” said Sen. Jack Reed, D-R.I.
On the question of how much money Carrie Tolstedt, the executive who oversaw the nation’s 6,000 Wells Fargo branches, will walk away with, Stumpf said he would abide by the compensation board’s determination on that matter.
Tolstedt stepped down in July and plans to retire later this year. She has received $20 million in bonuses since 2010. Warren is at the head of a Senate coalition demanding for some of that money to be clawed back.
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