Wells Fargo Exec Who Oversaw Fake Accounts Received $125 Million Upon Recent Retirement, Praise from CEO; Senate Hearings Next Week
[Banksters at play in the Banana Republic which is the United States. She'll probably go on to rule a Columbian drug cartel next, though it might be too far of a step down in pay. *RON*]
By Yves Smith, Naked Capitalism, 13 September 2016
Sanctimonious Wells Fargo, which was a major perp in foreclosure abuses, has finally managed to go too far. Even normally complacent institutional investors are disturbed how Wells Fargo threw customers illegally under the bus to wring some incremental revenues out of them.
Adding fuel to the fire is the revelation by Fortune that the officer on whose watch this abuse took place, one Carrie Tolstedt who conveniently resigned at the end of July, identified by an alert NC reader the day the scandal broke, made off with a cool $125 million in addition to earlier cash and prizes. From the Fortune story:
When Tolstedt leaves Wells Fargo later this year, on top of the $1.7 million in salary she has received over the past few years, she will be walking away with $124.6 million in stock, options, and restricted Wells Fargo shares. Some of that hasn’t vested yet. But Tolstedt gets to keep all of it because she technically retired. Had she been fired, Tolstedt would have had to forfeit at least $45 million of that exit payday, and possibly more.That stands in contrast with $185 million in fines paid to the CFPB, the Los Angles City Attorney, and the OCC, and does not include the multi-million amounts she also received in annual pay.
The Fortune article also states that:
Tolstedt was in charge of community banking during the entire time the “sandbagging” operation took place
Her success in cross selling was repeatedly cited in annual proxies as the reason for her ~ $9 million in yearly
When she resigned, “John Stumpf said Tolstedt had been one of the bank’s most important leaders and ‘a standard-bearer of our culture’ and ‘a champion for our customers.’ ”Fortune stresses that the Wells’ post-crisis clawback policy would appear to give it the power to rescind some of Tolstedt’s pay, yet management appears to have no intention to do so. One has to wonder if that’s because if she really has retired, she’s already stashed away enough millions that she could afford to wage a court battle to argue that she was acting with the knowledge and authorization of top management and thus should not bear the full brunt of financial punishment. And it’s not hard to see that any serious pursuit of who knew what when would almost certainly implicate top level executives, and Stumpf in particular. From the Financial Times:
Dennis Kelleher, chief executive of Better Markets, which lobbies to hold banks more accountable, said: “If Wells was serious about putting their customers first the CEO would give back a substantial amount of his performance pay and publicly disclose in detail all the people in the corporate chain of command who are responsible for making sure this [kind of incident] did not happen.”One sour note in Fortune article is the failure to question the bank’s claim that 5,300 employees who engaged in cross selling abuses were fired. That figure covers terminations over the period that the regulators and City Attorney investigated, from 2011 through 2015.
Wells was clearly all on board with the fake accounts scheme until the Los Angeles City Attorney opened an investigation due to a late December 2013 story in Los Angeles Times detailed the abuses. That means Wells was not in a legal hot seat until sometime in 2014. And even then, Wells no doubt believed, at least initially, that it could push back successfully. That means, since the “sandbagging” took place with the tacit and probably explicit backing of management, it’s highly unlikely that many employees were ousted for going too far prior to 2014, and possibly even 2015. In other words, a lot of the firings attributed to cross-selling abuses were probably for other failings.
The Financial Times discussed how the Wells scandal is escalating:
One large investor told the Financial Times that Wells should reclaim bonuses from the Wells executive, who has received at least $45m in total pay since 2011.
“There’s no point having a clawback if it doesn’t claw in circumstances like this,” the shareholder said. “What has happened at Wells is an affront to the integrity of the institution.”
Another investor said: “If this person presided over this, why no accountability? We have share-based pay so that it can be clawed back when people have been earning bonuses under false pretences, and if fraudulently opening client accounts isn’t false pretences, then I don’t know what is.”
Bernie Sanders, the US senator who ran unsuccessfully for president this year, also weighed in, calling the pay for Ms Tolstedt a “disgrace”.
Moody’s on Monday described the regulators’ disclosures as “highly disturbing”. The rating agency said the developments were a “credit negative” for the bank.The bank has also suspended cross selling efforts for the balance of the week, with Wells claiming that it was diverting resources to answer presumably irate customer calls.
The Senate Banking Committee has hearings set for September 20.
As we said in our initial post, it’s disturbing that regulators failed to target individuals, particularly for such a crass, systematic, and large scale fraud, and to add insult to injury, demanded a paltry fine. They apparently fell for the excuse that the damage per customer was $25, mere chicken feed. But the cost to them in terms of hassle, and most of all, credit score damage, which is a serious black mark for job-seekers and anyone looking for a mortgage or other loan, means the monetary losses are a poor measure of actual harm. So I hope readers whose Senators are on the banking committee will e-mail or call them and tell them they need to ask the bank regulators why they are punishing bank shareholders rather than the real perps, the executives who tolerated or encouraged this fraud.
But it is also telling that this case has elicited so much interest because the victims were clean. Other types of bank fraud, which have typically resulted in far more damage to the victims, such as foreclosure abuses, payday loans, debt collection cons, have stirred proportionally less outrage….because the target was typically a borrower and could be depicted as complicit in his sorry state by the mere fact of taking a loan. In German, the word for debt, schuld, also is the word for sin. Americans similarly harbor a dim view of individual borrowers, even as it becomes almost impossible to attain a bourgeois adult life of getting a college degree, buying a house, and having a car without being in debt. So while we can hope that the Wells abuse will finally break the logjam and lead to punishment of senior executives, even then it’s more likely to be an isolated case than a start of a trend.