Wells Fargo may have thought that firing 5,300 employees and paying $185 million in fines for opening some 1.5 million unauthorized accounts and filing 565,000 credit card applications without customers’ knowledge would make its scandal go away, but in an election year that has seen rage over perceived Wall Street greed reflected in the campaign of Bernie Sanders and to some extent the populist rise of Donald Trump, the bank may have miscalculated.
Not only does the bane of big banks, Sen. Elizabeth Warren of Massachusetts, have Wells in her sights, but The Wall Street Journal said Wednesday that two U.S. Attorney’s Offices are looking into its sales tactics. In addition, CEO John Stumpf has been called to appear before the Senate Banking Committee on Tuesday, and the House Financial Services Committee on Friday opened a fraud investigation.
Of the fines Wells Fargo paid, $100 million was imposed by the Consumer Financial Protection Bureau, marking the agency’s highest levy since it began operations in 2011.
Warren, who was instrumental in creating the CFPB, was asked on Thursday if the root cause of the problem at the bank was “bigness per se.”
She told Tyler Mathisen of CNBC that there is a “serious problem with senior management at Wells Fargo. Look, we’re talking about a scandal here that involves thousands of their employees cheating tens of thousands of customers out of money and making millions of dollars doing it for the bank.”
Warren said if senior management really didn’t know what was going on “then this is a bank that’s too big to manage.”
And if senior management did know what was going on, she said, they need to be held personally responsible. “I would feel a lot better about Wells Fargo if I heard someone in a position of authority like the CEO step up and say I take responsibility and I’m not keeping my job and I’m not keeping my bonus over this.”
The larger message of the scandal at Wells Fargo, Warren said, is that enormous structural problems remain on Wall Street, with giant financial institutions still thinking they can build profit models by cheating the American people.
By Friday, the scandal had knocked about $19 billion off the market value of the bank, but the fines were a drop in the $23 billion bucket of profits that Wells Fargo amassed last year.
Still, while the sham accounts likely would have drawn criticism of Stumpf whenever they were revealed, the political timing for Wells Fargo is particularly problematic. One of the central themes of the insurgent candidacy of Vermont Sen. Sanders, a progressive soul mate of Warren’s, as he sought the Democratic presidential nomination, was the greed of Wall Street and the need to break up the big banks. Democratic nominee Hillary Clinton, a reliable ally of the financial community when she was a New York senator, now echoes Sanders’ call for putting the banks and the Street on a tighter leash. And while it’s hard to pin down exactly where Trump stands, he and GOP leaders such as House Speaker Paul Ryan have called for a dismantling of the CFPB.
On Sept. 9, Clinton tweeted:
But, surprisingly, the Republican Party platform approved at the convention that nominated Trump in July advocates reinstatement of the Glass-Steagall Act, which could lead to the breakup of big banks were it to happen. Glass-Steagall, which separated commercial and investment banking, was eviscerated during the administration of President Bill Clinton. Many believe that helped create “too-big-to-fail” banks.
On Tuesday, Jim Cramer of CNBC’s Mad Money, said in an interview with Stumpf: “There are a lot of people who tell me that you have to hold yourself accountable…. And to do that, it may mean, some people say, that you have to resign.”
“Well, Jim,” Stumpf replied, “I think the best thing I could do right now is lead this company and lead this company forward.”
Stumpf became evasive when Cramer asked about the one person who might be most influential in deciding whether the CEO gets to stay and do that.
“Have you gotten a call from Warren Buffett?” Cramer asked.
Berkshire Hathaway, the holding company controlled by Buffett, has about a 10 percent stake in Wells. The value of that stake has dropped about $1.4 billion since the scandal broke.
“You know, I talk to a lot of our constituents,” Stumpf said.
“But Warren, I mean, he would obviously be very important,” Cramer said. “If I knew that he backed you, I would personally feel better telling people to own the stock.”
“Jim, again, I'm not gonna talk about any conversation with any one investor,” Stumpf said. “But I'm talking to a lot of constituents, and I'm working hard to lead our company through this.”
In the conversation with Mathisen, Warren was asked about the golden handshake being given to Carrie Tolstedt, the Wells Fargo executive in charge of community banking, the unit in which the allegedly fraudulent activity occurred. Tolstedt, who stepped down in July, will walk with a reported $95 million in stock and options accumulated over her years with the bank.
Talk about something that tells you what’s wrong with Wall Street, Warren said. When someone can be the person responsible “and then they get to stuff their pockets with money and walk out the door while everyone else gets fired — that’s just fundamentally wrong.”
She was talking about Tolstedt, but she may have been thinking about Stumpf.
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