Wells Fargo CEO forfeits millions

Wells Fargo & Co said on Tuesday that Chief Executive Officer John Stumpf will forfeit unvested equity awards worth about US $41 million and will not get a salary while the company’s board investigates the bank’s sales practices.

Carrie Tolstedt, the former head of the retail division at the center of a burgeoning sales scandal, has left the company ahead of her planned December 31 retirement date, will get no severance and has forfeited unvested equity awards worth about US $19 million, the bank said. Stumpf and Tolstedt will also not receive bonuses for 2016.

The penalties represent one of the biggest financial sanctions ever levied against a major bank boss and mark a sharp change from a few years ago when despite scandals at large banks, no CEO had to give back a bonus.

Wells Fargo, the United States’ third-largest bank by assets, is under pressure to show it is holding its top brass accountable after government investigations revealed that some of its employees opened as many as 2 million accounts without customers’ knowledge in order to meet sales targets.

The company’s failure to claw back executive bonuses was a big feature of Stumpf’s appearance before a Senate Bank Committee meeting last week into the bank’s sales tactics. Some lawmakers also called on him to resign.

Stumpf will appear before the House Financial Services Committee on Thursday.

The San Francisco-based bank agreed to pay US $190 million earlier this month to settle regulatory charges over the account scandal and has fired about 5,300 employees, most of them low-ranking staff, in connection with it.

A special committee of the bank’s independent directors will lead an investigation into the retail bank’s sales practices, helped by the board’s human resources committee and the law firm Shearman & Sterling LLP, according to the statement.

The investigation may lead to further compensation changes or employment actions, the company said.

"We are deeply concerned by these matters, and we are committed to ensuring that all aspects of the Company’s business are conducted with integrity, transparency, and oversight," Stephen Sanger, the board’s lead independent director, said in a statement.

"We will conduct this investigation with the diligence it deserves."

Stumpf, a member of the board, has recused himself from the investigation, the bank said.

Wall Street banks have introduced clawback provisions in the wake of the financial crisis when tens of billions of dollars in penalties for mortgage fraud and other illegal activities were paid out but no executive had to give back their bonus.

Since then, and before Stumpf’s forfeiture, the closest a bank CEO has come close to a clawback was when Jamie Dimon, JPMorgan Chase’s chief executive, had his 2012 bonus cut in half after the bank’s board decided he should shoulder blame for US $6.2 billion of "London Whale" trading losses.

Wells Fargo has previously said it would eliminate sales goals in its retail banking on Jan. 1, 2017.

However, the Wall Street Journal reported earlier on Tuesday that the firm was planning to eliminate the goals on Oct. 1, citing Stumpf’s prepared remarks for delivery at the hearing.

Up to Tuesday’s close, shares of the company have fallen nearly 10 per cent since Sept. 8 when it reached a settlement with regulators, wiping off about US $24 billion of market capitalization.

-Nampa/Reuters