The unexpected resignation of Wells Fargo CEO John Stumpf Wednesday afternoon broke a familiar pattern of scandals in the banking industry: For once, a man at the top took the fall, and he took it fast.
No doubt Stumpf is still trying to figure out why practically no one believed he was blameless for the actions of employees who opened millions of fraudulent checking, savings, and credit card accounts without the permission of customers. But something did make Stumpf different from the other finance executives whose institutions have caused havoc, both those who ultimately lost their jobs and those who did not: Their missteps generally involve complicated financial practices and products that affect most of us but which we cannot easily explain. Wells’ scandal was one that everyone knows how to name.
Before the bank announced his immediate exit, Stumpf tried to pin the blame for the widespread malfeasance on almost anyone but himself—a move that comes straight from the financial-crisis playbook. Over the past decade, bank officials have blamed consumers lacking financial literacy for not understanding the fraudulent mortgages they signed, accused them of greed for spending too much money on homes, paid slap-on-the-wrist fines for such dodgy practices as marketing subpar home loans and car financing to minorities, and, when all else failed, kicked a high-ranking but not-fully-in-charge woman to the curb in the hopes of keeping the ship afloat.
At the height of the financial crisis, among the first top-ranking executives to receive their walking papers were women, people like Morgan Stanley’s Zoe Cruz, Citigroup’s Sallie Krawcheck, and Lehman Brothers’ Erin Callen. (A few years ago Krawcheck told me, “I did joke for a while that if I had dropped dead in 2008, 2009, or 2010, my tombstone was going to read, ‘SALLIE ZOE ERIN.’ ”) More recently, when JPMorgan Chase’s London Whale scandal occurred, both Bruno Iksil, the relatively low-level trader who ran up $6.2 billion in losses on bad bets and high-ranking executive Ina Drew, who supervised his unit, both got the can, while CEO Jamie Dimon escaped with little more than a few uncomfortable hours testifying in front of Congress (and, of course, one of those hefty-sounding fines for the bank), despite calls for him to resign.
Wells Fargo has made similar moves managing its own scandal, but they weren’t enough for Stumpf to keep his job. So what was different?
Yes, the Wells Fargo situation, which dates, depending how you count, either five or 10 years back, was a slow-burning scandal in the industry and to the few who followed the investigative reporting on it. But to the general public, the news of the bank’s bad behavior and its $185 million settlement with the Consumer Financial Protection Bureau, the federal Office of the Comptroller of the Currency, and the Los Angeles City Attorney’s Office broke with the suddenness of an explosion.
One reason not many knew about it, at least in part, was that Wells—under the leadership of Stumpf—attempted more than once to stick customers with the consequences of the bank fraud while keeping the disputes out of the public record. They forced those who filed suit for losses into private arbitration based on the contracts they signed when they initially opened accounts with the bank, even though these customers were seeking redress for accounts they hadn’t even authorized and didn’t know existed until they experienced damages as a result. In one case, Latina singing star Ana Barbara was informed that Wells Fargo would only make good on $250,000 of the $400,000 that bank employees drained from her accounts after they opened shadow accounts in her name. The problem? She should have complained earlier.
When the landmark settlement was announced this summer, Stumpf promptly made a bad situation worse. Wells Fargo immediately said it had fired 5,300 employees as a result of the scandal. They didn’t “put customers first” or “honor our visions and values,” Stumpf wailed to the Wall Street Journal—implying that their actions were individual abuses, not systemic ripples. Yes, these employees opened the accounts and cards, but they did so under the pressure of delusional sales quotas, one of which originated because executives wanted workers to pitch every customer on eight different Wells products because the number rhymes with great.
Stumpf’s line did not go over well. A number of whistleblowers quickly stepped forward to claim they had been harassed or fired from Wells for reporting suspicious activity. Others pointed out that firing low-paid workers for committing fraud in an effort to meet all-but-impossible sales goals set by multimillionaire executives was more than a bit tacky and offensive. As Sen. Elizabeth Warren put it when she confronted Stumpf during a Senate hearing on the matter, “Your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership.”
So gutless that at that same hearing, Stumpf tossed a female subordinate under the bus. That’s Carrie Tolstedt, the senior executive in charge of Wells Fargo’s branches when the customer abuse took place. Tolstedt had rather unexpectedly announced her retirement this past summer, with a planned exit at the end of the year accompanied by a $125 million goodbye gift. Stumpf, in the press release announcing her exit, called her “a standard bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.” Bank flaks, when asked, denied having anything to do at all with those 2 million fraudulent accounts.
But that was so summer of 2016! By early fall, Stumpf felt somewhat differently about Toldstedt. At the Senate hearing, he said her departure was a result of changes the bank was making in the wake of the scandal. When asked whether he would claw back some of her pay, he said he wasn’t “an expert” on pay and compensation practices; he would leave that decision to the board of directors, perhaps hoping the senators would forget he was also the chairman of Wells Fargo’s board.
But nothing seemed to make things better for Wells in general or Stumpf in particular. Little wonder. It wasn’t just that Wells Fargo expressed almost breathtaking contempt for its customers; it did it in a way they could easily understand. Most of us can’t explain what a bet on a credit-default swap is, but we know exactly what to call Wells’ actions: a form of identity theft. And it’s the kind of identity theft involving financial products most of us possess. Combine that with the tenor of our mad-as-hell times—mad across all political persuasions—and you had a scandal that wasn’t going to end until it hit the top.
Don’t get me wrong. The bank replaced Stumpf with Tim Sloan, an almost 30-year Wells Fargo veteran whose appointment doesn’t exactly connote a clean house. But Wells Fargo’s woes continue to mount. Federal prosecutors in the U.S. Attorney’s Offices in the Southern District of New York and the Northern District of California are looking into whether the cross-selling pressures meet the standard for prosecution. A number of states and cities, including California and Chicago, have temporarily suspended doing business with the bank. The federal Department of Labor is investigating the firm’s employee practices. There are now indications employees attempted to notify Stumpf and other C-suite executives about the wide-ranging fraud as far back as 2005, six years prior to the beginning of the period covered by the CFPB settlement. And on Wednesday, the day Stumpf announced his resignation, Reuters reported the Securities and Exchange Commission sent a letter to bank officials, asking how the sales quotas that led to insane pressure on workers were tabulated.
In the meantime, one thing’s for sure: Wells Fargo’s phone call to announce and explain its third-quarter earnings, scheduled for Friday morning, will sure be one worth listening in on. It’s rare to see a CEO fall on his sword this rapidly. We’ll soon know whether banking analysts, politicians, and the American people think that’s enough.