- Win McNamee/Getty Images
Wells Fargo CEO John Stumpf was back in Washington, DC, on Thursday to be questioned for a second time by members of Congress.
This time around, the House Financial Services Committee will get the chance to grill Stumpf on the bank’s recent accounts scandal. Last Tuesday, Stumpf spent three hours in front of the Senate Banking Committee.
“We continue to believe that today’s House Financial Services Committee hearing on the Wells Fargo account scandal will be more contentious, lengthy, and unpleasant than last week’s Senate hearing as the nearly 60 members of the House committee stretch to secure their sound bite,” Isaac Boltansky at Compass Point said in a note.
Stumpf will have to answer questions regarding the opening of 2 million bogus accounts by Wells Fargo employees without customers’ knowledge from 2011 to 2015.
The bank was fined $185 million by regulators for the practice.
We’ll be following the hearing live, so scroll down for the latest updates on the hearing (Note: updates are ordered with the most recent first).
HERE’S A RUNDOWN OF THE TOP MOMENTS
Rep. Maxine Waters, the ranking member of the committee, said she was “moving forward to break up Wells Fargo” because the bank was too big for one CEO to manage. Rep. Carolyn Maloney asked Wells Fargo CEO John Stumpf whether his sale of millions of dollars of stock was related to his learning about the fraudulent accounts. Stumpf’s largest stock sale occurred soon after the time he said he found out about the accounts. He denied the two events were linked. Stumpf said the bank actually lost money, roughly $8 million, from the fake accounts. Stumpf maintained that the culture of the company did not cause employees to open accounts without customers’ knowledge. Stumpf said all of the 5,300 employees fired over the scandal were let go for unethical actions, not for missing sales targets. He also acknowledged that some employees did “steal” from customers. Stumpf said he had a conversation with Warren Buffett, the legendary investor and the largest shareholder of Wells Fargo.
2:10 – That’s it: The hearing is adjourned.
After just over four hours of questioning, Stumpf is finished with the testimony. House members have five days to submit further written questions to Stumpf and Wells.
1:155 – Stumpf says he has talked to Warren Buffett.
Warren Buffett is the largest shareholder in Wells Fargo and recently petitioned the Federal Reserve to increase his ownership stake to 10%. Buffett has not commented on the situation and has said he will not do so until after the election in November.
1:47 – Rep. Maxine Waters notes Bloomberg is reporting that Wells Fargo will have to pay about $20 million for illegally seizing cars from military members.
Democratic Rep. Maxine Waters of California mentioned a Bloomberg report, citing two unnamed sources, that regulators were planning to fine Wells Fargo $20 million under the Servicemembers Civil Relief Act.
The law is designed to protect active military members from having to worry about financial troubles while serving.
Waters also noted that Stumpf was on the board of directors of two other companies and that Wells Fargo may be too large for a CEO to properly handle.
“I’m moving forward to break up Wells Fargo,” Waters said.
1:34 – “When are you going to resign?”
- Mark Wilson/Getty Images
Rep. Roger Williams, a Texas Republican, said the testimony was “the most I’ve ever heard a CEO of a company respond, ‘I don’t know.'”
Williams then asked Stumpf whether he planned to resign, to which Stumpf replied, “I serve at the pleasure of the board.”
1:29 – Stumpf says Wells Fargo actually lost money from the accounts that were opened without customers’ knowledge.
Stumpf said that while Wells Fargo made just over $2 million from fees on the accounts, the opening and maintaining of the accounts cost the bank about $10 million.
1:24 – Stumpf says he suggested to the board of directors that it claw back his stock-based compensation.
Rep. Frank Guinta, a New Hampshire Republican, noted that Stumpf said during the Senate hearing that he would not make a suggestion to the board regarding his compensation or that of Carrie Tolstedt, the former head of community banking who oversaw the division where the fake accounts were created.
Stumpf, however, said in Thursday’s testimony that he did suggest to the board that it take back some of his stock compensation.
Stumpf said he made the recommendation over the weekend because it was a “small step” to help make up for the fraud. Guinta then asked why Stumpf did not think to make the suggestion before the criticism from the Senate.
“I was preparing for other things and it did not cross my mind – it developed in my thinking sometime over the weekend,” Stumpf said.
12:45 – “Do you know what this is, Mr. Stumpf?”
Rep. James Himes, a Connecticut Democrat, noted that the market cap of Wells Fargo had declined by about $25 billion since the settlement became public.
“You realize you’ve obliterated half a Ford, right?” Himes asked. The market cap of Ford Motor Company is roughly $50 billion.
Additionally, Himes held up a dollar bill to make the point that both the US currency and the banking system were based on trust that they would work. Himes said Wells Fargo had broken that trust and seriously damaged the banking industry.
“Trust is the critical element here – I totally agree,” Stumpf said.
12:26 – “That’s the first time I’ve ever heard that.”
Democratic Rep. Keith Ellison of Minnesota read off a long list of various sales tactics that former employees have said Wells Fargo employed, including prospecting calls from lists from which to cold call potential customers and written warnings on sales goals from managers.
Stumpf seemed surprise to hear about the tactics and said he was not aware of the ins and outs of the daily retail-banking branches.
“I don’t know that level of detail,” Stumpf repeatedly replied when Ellison cut him off and continually would not allow him to provide detail.
12:23 – “Is Wells Fargo too big to manage?”
Rep. Marlin Stutzman of Indiana asked whether Wells Fargo had grown too large to properly oversee all aspects of the bank.
“No, this was a focus problem,” Stumpf said, adding that the bank still did a lot of things well.
12:06 p.m. – Stumpf says “managers of managers of branch managers” were fired for the accounts scandal.
Stumpf reiterated that “managers of managers of branch managers” were fired for the opening of fraudulent accounts. He was unable to definitively answer what the job title was for that level, but he said he believed it was “area president” when repeatedly pressed by Rep. Emanuel Cleaver, a Missouri Democrat.
11:59 – “At worst it was a criminal enterprise.”
Republican Rep. Bill Posey of Florida said Wells Fargo’s actions amounted to illegal activity and defrauded customers.
Posey also asked whether demographics played a role in who was affected by the fraudulent accounts. Stumpf replied the bank did not take any racial or ethnic information so was not aware.
Stumpf also said if there was a bias, it’d be that the fake accounts skewed more toward young people.
11:47 – “I am not a criminal attorney”
Rep. David Scott, a Georgia Democrat, asked point-blank whether Stumpf thought he had broken the law.
“Here’s the fundamental question I want to ask you: Do you think what you did was criminal?” Scott asked.
“I am not a criminal attorney,” Stumpf replied. “I led the company with courage. I did not break our code of ethics.”
11:27 – Stumpf defends the Wells Fargo goal to sell eight financial products to each customer.
- Mark Wilson/Getty Images
Stumpf said cross-selling, or attempting to sign customers up to multiple financial products such as another credit card or a mortgage, was not leading to the fake accounts.
Republican Rep. Edward Royce of California asked whether a 2013 Los Angeles Times article that first brought the possibility of fake accounts to light ever made Stumpf think about de-emphasizing cross-selling. Stumpf replied it did not.
Royce asked why, if Stumpf knew that there were fake accounts, the company did not note that in its filings when listing cross-selling metrics.
“It’s absolutely immaterial,” Stumpf said.
11:16 – “Did your employees steal from people?” Republican Rep. Sean Duffy of Wisconsin asked. “In some cases yes,” Stumpf replied.
Stumpf acknowledged that in some the cases employee actions did amount to stealing, but he said most of the accounts did not generate much revenue for the bank.
11:10 – “You’re going to tell me the culture isn’t wrong at Wells Fargo?”
Rep. Gregory Meeks, a New York Democrat, said Wells Fargo had a “culture of being fined and losing money for the bank” and held up a chart showing all of the fines and judgments that had gone against the bank since Stumpf became CEO.
Meeks also said the Wells scandals has affected the rest of Wall Street. “Not only does your bank have a black eye, but you gave the entire financial industry a black eye,” Meeks said, adding that Stumpf was “sitting on top of a criminal enterprise.”
Stumpf said he did not believe the culture was broken and thought most of the employees did the right thing.
10:57 – Rep. Brad Sherman, a California Democrat, said he was worried that the same practices that affected Wells Fargo may be happening at other banks like Citi and Bank of America.
“Mr. Stumpf, I don’t believe I think you should be alone in this joyous occasion,” Sherman said, noting that he was worried that other banks may be using the same practices and that the fraud may be prevalent throughout the industry.
10:48 – “My understanding is that no one should be terminated for missing their sales goals, but I can’t say that it didn’t happen.”
Stumpf said all 5,300 employees fired in connection to the scandal were removed for ethics violations and not sales goals. Stumpf also said the company had sales goals – not quotas.
Stumpf said there were no product sales goals in the small-business-lending side of Wells, but he would not guarantee that similar issues did not happen in small business.
10:38 – “Did you dump the stock after you found out about the fraudulent accounts?”
Democratic Rep. Carolyn Maloney of New York noted, with an SEC Form 4 showing executive stock sales, that Stumpf made his largest sale of stock options soon after the time he claimed he found out about the opening of fake accounts.
“It seems very, very suspicious that your largest sale was right after your $1.8 trillion bank was turned into a school for scoundrels,” Maloney said.
Stumpf said he did sell the sales with “proper approval” and denied that he sold stock because he had found out about the practices.
10:32 – Rep. Randy Neugebauer, a Texas Republican, asks whether it was a conflict for Stumpf to be both CEO and chairman of the board, which oversees his compensation and other oversight at the bank.
Stumpf said he was not on any committee for the board and the bank had outside, independent directors.
“The board acts quite independently,” Stumpf said, adding that the structure was the correct one for Wells.
The dual role of chairman and CEO at financial institutions has been under scrutiny since the financial crisis.
Neugebauer also asked whether the bank ever disclosed the issue in a 10-K form in the two years after Stumpf became aware of the fraud. Stumpf argued that the possible fraud was not material.
“As recently as second quarter this year … the facts and circumstances we believe were not material,” Stumpf said.
10:21 – Hensarling asks Stumpf to identify the highest-ranking member of Wells Fargo to be fired because of the scandal
Stumpf replied that “managers of managers of managers” were fired – but nobody at the corporate level was. Stumpf also said the company and the board were reviewing the issue and senior management could still be held accountable.
Hensarling also brought up an earlier settlement within Wells’ mortgage division in which employees falsified income statements to give loans to undeserving applicants.
“It feels like déjà vu all over again,” Hensarling said.
10:15 – Stumpf begins his prepared testimony. There was no “orchestrated effort” to deceive customers.
“We should have done more sooner, but we will not stop working until we get this right,” Stumpf said in prewritten remarks.
Stumpf said the bank had moved up the date that it would end controversial sales goals for retail employees from the end of the year to Friday. Many solutions Stumpf detailed were the same as the ones he presented to the Senate.
“When I say I am accountable, I am talking about the actions the board took with my recommendation to take back much of my stock-based compensation, which make up much of my compensation,” Stumpf said. He added that he hoped to be the leader to take Wells into the future, indicating that his resignation was not coming anytime soon.
10:10 – Ranking member Maxine Waters says “lower level employees have been left to bear the weight” of the scandal.
Waters, a Democrat from California, said that Stumpf’s testimony to the Senate was not satisfactory and that Stumpf gained while lower-level employees suffered.
“Your own bank account benefited from that deception,” Waters said.
10 a.m. – We’re underway with chairman Jeb Hensarling’s opening statement.
The hearing is called “Holding Wall Street Accountable Investigating Wells Fargo Opening of Fake Accounts.”
“Fraud is fraud and theft is theft, and what happened at Wells Fargo over many years can be called nothing else,” Hensarling, a Republican from Texas, said.
Hensarling also said that the committee was launching an investigation and may subpoena other executives and that he believed there were violations of various laws.
Hensarling said he was a customer of Wells Fargo but no longer wished to be.
“Mr. Stumpf, I unfortunately have a mortgage with your bank, and I wish I didn’t,” Hensarling said.
PREHEARING: Things to look out for.
In what was possibly a preemptive move by the company, the Wells board of directors decided to take back $41 million in stock-based compensation from Stumpf along with just over $16 million in stock options from former community-banking head Carrie Tolstedt. The compensation for Tolstedt, who oversaw the retail-banking segment where the fraudulent accounts were opened, was a huge point of contention during the Senate hearing.
Stumpf will have to walk a fine line between taking responsibility and not blaming the culture of the company, so as to not made senior executives seem complicit.
Also to be expected from the roughly 60 House members on the committee will be some highlighting of the impact on their constituents. In an election year, the Wells scandal is a Wall Street scandal that the average American is directly connected with (almost everyone has a bank account), and it can help the members of Congress look tough on the financial industry.