The $185 billion settlement Wells Fargo had to pay for creating customer accounts without customer approval was great for consumers, but how they defrauded customers isn't the whole story, as David Dayen explained last week. No, what it really was was securities fraud, and the "goal of this enterprise was not really to make money through fees on the add-on products," it was "to show steady quarterly growth to investors. The daily sales quotas weren’t plucked from the sky, but designed to maintain industry leadership in cross-selling."
Sen. Elizabeth Warren hit Wells Fargo Chairman and CEO John Stumpf for just that in a hearing Tuesday in the Senate Banking Committee. She also told him he should resign, he should return the money he made on the scam, and he should face a Justice Department investigation for possible criminality.
"You have not resigned, not returned a single nickel of your earnings, have not fired a single executive. Your definition of "accountable"—it is gutless leadership. In your time as chairman and CEO, wells has been famous for pushing customers to open accounts. It is one of the reasons that Wells has become one of the most valuable banks in the world. […]
Other banks averaged fewer than three accounts per customer, but you set the count at eight accounts for every customer at wells should have eight accounts with a bang, not because you round the numbers and found the average customer needed eight banking accounts, it is because eight rhymes with great. This was your rationale in your 2010 annual report. Cross-selling is not about helping customers get what they need. If it was, you would not have to squeeze your employees so hard to make it happen. No, cross-selling is all about pumping up wells' stock price, isn't it?
Then Stumpf made a mistake, saying "No. Cross-selling is shorthand for deepening relationships."
"You said no? No?" Warren snapped back, well prepared with transcripts of 12 quarterly earnings calls Stumpf participated in from 2012 to 2014, while the scam was in place. In each of the 12 calls, Warren pointed out, Stumpf cited "Wells Fargo's success at cross-selling retail accounts as one of the main reasons to buy more stock in the company." "Wall Street loved it," she said, with top analysts "recommending that people by Wells Fargo stock in part because of the strong cross-sell numbers."
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Then she asked Stumpf how much he personally made off of the scam. Of course he didn't answer, but of course she didn't need him to. She had the numbers: more than $200 million in gains in the shares he held during the period. "Now, here's what really gets me about this, Mr. Stumpf," she continued.
"If one of your tellers took a handful of $20 bills out of the cash drawer, he probably would be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion dollar bonuses, and you went on television to blame thousands of $12 an hour employees who were just trying to meet cross sell quotas that made you rich."
So far, Stumpf is getting off easy. His bank had to pay out a lot of money, but he's doing just fine. As she said in this hearing, and has said time and time again: "The only way that Wall Street will change is if executives face jail time when they preside over massive fraud."
We need more senators like Elizabeth Warren. We need Democrats to be in charge of the Senate so her great colleague, Sen. Sherrod Brown of Ohio, is in charge of the Banking Committee and in a position to use that committee to fight for Main Street.