Why is Tim Sloan still CEO, asks California Treasurer.
In a letter so brutally scathing it’s practically funny, California Treasurer John Chiang skewers Wells Fargo, its Board of Directors, and its new CEO Tim Sloan. And he extended the sanctions on Wells Fargo, first imposed in September last year, by “at least” another year.
The Treasurer’s office oversees “nearly $2 trillion in annual banking transactions, manages a $75 billion investment pool, and is the nation’s largest issuer of municipal debt,” Chiang pointed out last year when he imposed the sanctions on Wells Fargo’s “most highly profitable business relationships with the State of California.” Those sanctions include:
- Suspension of investments by the Treasurer’s Office in all Wells Fargo securities.
- Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by his office.
- Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the Treasurer appoints the underwriter.
With these sanctions, Chiang sought “real accountability and lasting reforms.” But it’s a long and complex relationship that dates back to the Gold Rush era:
Wells Fargo has evolved to become the nation’s second largest bank by total assets. California is set to become the world’s fifth largest economy. What we each do, therefore, matters and effects the public interest.
The sanctions were first triggered by revelations last year that Wells Fargo “had fleeced its own customers by opening millions of bogus accounts” which “raised concerns about the bank’s culture, leadership, and loyalties.” The sanctions were aimed “to spur” the leadership to answer this question:
“Could Wells Fargo identify and eradicate the root causes of this widespread and recalcitrant culture of customer abuse and restore public trust?”
Wells Fargo did accomplish a few things Chiang had demanded, including:
- Separating the CEO and the chairman into two positions
- Three of the board members “at the helm” at the time of the “bogus accounts scam and other abuses” have departed or will soon.
- Key executives were fired and “there have been claw-backs of executive compensation across the company.”
- Incentives for cross-selling having been eliminated.
But now there has been “a string of new disclosures about bad practices at the bank,” a veritable “infestation of problems” that “have come scurrying out of dark corners within Wells Fargo,” among them:
- The number of phony accounts has ballooned from an initial 2 million to now 3.5 million.
- This past July, news broke that as many as 800,000 consumers were forced by the bank to buy “lender -based” car insurance they did not need, tipping a quarter of a million Wells Fargo customers into delinquency and triggering 25,000 vehicle repossessions.
- In August, a new and different auto insurance fraud scandal broke in which the bank is being accused of failing to make refunds to consumers who paid off their loans early.
- Also in August, Wells Fargo agreed to pay $108 million to settle a lawsuit claiming it overcharged military veterans under a federal mortgage refinancing program.
As revelations like these are recurring “with such regularity,” Americans could “become de-sensitized to the bank’s pervasive exploitation of the public’s trust.” He added, “It concerns me when systemic fraud and abusive banking practices are broadly viewed as the new normal.”
The bank’s “reluctance to hang a lantern over past and present mistakes undercuts claims of repentance and meaningful reform.” He listed three examples of what Wells Fargo failed to do:
- Provide my office with evidence that it is complying with the terms and conditions of consent orders and settlements with the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Los Angeles City Attorney.
- Deliver information I requested regarding the number of California consumers actually harmed, the concentration of those Californians by branch location, zip code, or city, and the status of your efforts to resolve their grievances and make them whole.
- Permit victims to have their day in court, where an independent judge or jury could view evidence and hear testimony. Instead, [Wells Fargo chose to] re-route them to forced arbitration, a secretive process that tilts in favor of corporations.
Chiang had harsh words for forced arbitration: “Note that by silencing victims and allowing the bank’s abusive practices to fly below the public’s radar, this opaque process fostered a culture of exploitation and enable it to metastasize.”
In April, he’d called for the dismissal of seven board members who were “missing in action as the parade of scandals took form on their watch.” They include all five on the Corporate Responsibility Committee.
“Absent their neglect or – worse yet – willful encouragement, the systemic corruption and venal abuse of customers that has now become a part of Wells Fargo’s brand would not have occurred,” he said.
Those seven board members bear responsibility. But to date, “four remain.”
“The bunker mentality in defending negligent leaders, the opaque manner with which the bank continues to do business, and the frequency of new disclosures of wanton greed and lack of institutional control have made this decision so clear that there really was no choice,” he said. Hence, thee extension of the sanctions for “at least” one more year.
Then he went after his ultimate scalp, CEO Tim Sloan, a Wells Fargo lifer, who was promoted to CEO after John Stumpf was forced out a year ago. Chiang mused “whether Mr. Sloan’s three-decade tenure within Wells Fargo would allow him to be the change-agent leader Wells Fargo so desperately needs.”
The Treasurer of California has limited tools to deal with the bank: He can choose not to do business with it, and he can get on the bully pulpit. That’s about it. Chiang is now running for governor. So these Wells Fargo scandals came at a perfect time. But ultimately, it’s irrelevant why he’s hounding Wells Fargo. What matters is that he is hounding it with the limited tools he has since the bank regulators – particularly the Fed, under whose watch all this has been going on for years – have barely wagged a finger.