Elizabeth Warren

Questioning Wells Fargo CEO, John Stumpf at Banking Committee Hearing - Sep. 20, 2016

Elizabeth Warren
September 20, 2016— Washington, D.C.
Banking Committee Hearing
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WARREN: Thank you Mr. Chairman. Mr. Stumpf, the Wells Fargo Vision and Values Statement –which you frequently cite—says: “We believe in values lives not phrases memorized. If you want to find out how strong a company’s ethics are, don’t listen to what its people say, watch what they do.” So let’s do that. Since this massive years-long scam came to light, you have said repeatedly, “I am accountable.” But what have you actually done to hold yourself accountable? Have you resigned as CEO or Chairman of Wells Fargo?

STUMPF: The board, I serve at the…

WARREN: Have you resigned?

STUMPF: No I’ve not.

WARREN: All right. Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?

STUMPF: Well first of all this was by one percent of our people…

WARREN: That’s not my question

STUMPF: And, and…

WARREN: My question, it’s about responsibility. Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?

STUMPF: The board will take care of that.

WARREN: Have you returned one nickel of the money that you earned while this scam was going on?

STUMPF: And the board will do…

WARREN: I will take that as a no then. Have you fired a single senior executive? And by that I don’t mean a regional manager or branch manager. I’m asking about the people who actually led your community banking division or your compliance division?

STUMPF: We’re made a change in our regional, to lead our regional bank

WARREN: I just said, I’m not asking about regional managers, I’m not asking about branch managers, I’m asking if you have fired senior management. The people you actually led community banking division, who oversaw this fraud, or the compliance division that was in charge of making sure that the bank complied with the law?

STUMPF: Carrie Tolstedt…

WARREN: Did you fire any of those people?


WARREN: No. Ok. So you haven’t resigned. You haven’t returned a single nickel of your personal earnings. You haven’t fired a single senior executive. Instead evidently 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. In your time as Chairman and CEO, Wells has been famous for cross-selling –which is pushing existing customers to open more accounts. Cross-selling is one of the main reasons that Wells has become the most valuable bank in the world. Wells measures cross-selling by the number of different accounts a customer has with Wells. Other big banks average fewer than three accounts per customer. But you set the target at eight accounts. Every customer of Wells should have eight accounts with the bank. And that’s not because you ran the numbers and found that the average customer needed eight banking accounts. It is because “8 rhymes with great.” This was your rationale right there in your 2010 Annual Report. Cross-selling isn’t about helping customers get what they need. If it was, you wouldn’t 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?

STUMPF: No. Cross-selling is shorthand for deepening relationships. We—what we do well..

WARREN: Whoa, let me stop you right there. You say no? No?


WARREN: Here are the transcripts of twelve quarterly earning calls that you participated in from 2012 to 2014, the three full years in which we know this scam was going on. I’d like to submit them for the record, if I may Mr. Chair. Thank you. These are calls where you personally made your pitch to investors and analysts about why Wells Fargo is a great investment. And in all twelve of these calls, you personally cited Wells Fargo’s success at cross-selling retail accounts as one of the main reasons to buy more stock in the company. Let me read you a few quotes that you had. April 2012, quote, “We grew out retail banking cross-sell ratio to a record, 5.98 products per household.” A year later, April 2013, quote, “We achieved record retail banking cross-sell of 6.1 products per household.” April 2014, quote, “We achieved record retail banking cross-sell of 6.17 products per household.” The ratio kept going up. And it didn’t matter whether customers used those accounts or not. And guess what? Wall Street loved it. Here, is just a sample of the reports from top analysts in those years, all recommending that people buy Wells Fargo stock in part because of the strong cross-sell numbers. And I’d like to submit them for the record.

SHELBY: Without objections.

WARREN: Thank you, Mr. Chair. So when investors saw good cross-sell number—they did, while this scam was going on—that was very good for you personally, wasn’t it, Mr. Stumpf? Do you know how much money, how much value your stock holdings in Wells Fargo gained while the scam was under way?

STUMPF: Well, first of all, it was not a scam. And cross-sell is a way of deepening relationships. When customers…

WARREN: We’ve been through this Mr. Stumpf. I asked you a very simple question. Do you know how much the value of your stock went up while this scam was going on?

STUMPF: It’s all of my compensation is in our public stock…

WARREN: Do you know how much it was?

STUMPF: It’s all in the public filing.

WARREN: You’re right, it is all in the public records because I looked it up. While this scam was going on, you personally held an average of 6.75 million shares of Wells Stock. The share price during this time period went up by about $30 which comes out to more than $200 million in gains all for you personally. And thanks, in part, to those cross-sell numbers that you talked about on every one of those calls. You know, here’s what really gets me about this, Mr. Stumpf. If one of your tellers took a handful of $20 bills out of the cash drawer, they’d probably 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. This is about accountability. You should resign. You should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission. This just isn’t right. A cashier who steals a handful of $20s is held accountable, but Wall Street executives who almost never hold themselves accountable, not now and not in 2008 when they crushed the worldwide economy. The only way that Wall Street will change, is if executives face jail time when they preside over massive frauds. We need tough, new laws to hold corporate executives personally accountable and we need tough prosecutors who have the courage to go after people at the top. Until then, it will be business as usual. And at giant banks like Wells Fargo, that seems to be cheating as many customers, investors, and employees as they possibly can. Thank you, Mt. Cahir.

8[A break in questioning]*

WARREN: Mr. Stumpf, as you know, some of my colleagues and I sent you a letter last week about the board’s plans to claw back compensation from senior executives who are responsible for overseeing this scam. Wells Fargo provided us with a response yesterday, I noticed that although we sent the letter to you, that the response came from somebody else in the company, which I guess is another example of holding yourself accountable. I wanna focus now, on the mysterious circumstances surrounding Carrie Tolstedt’s retirement in July. As you know, Ms. Tolstedt ran the Community Banking Division, the division where this scam occurred for the entire time that this scam took place. She was in charge of all the 5,300 employees who were fired, and she oversaw the creation of 2 million fake accounts. Now, in July of this year just two months before the settlement was announced and before those facts became public, Ms. Tolstedt retired at the age of 56. You indicated in the letter, responding to our letter, that she walks away with over $90 million in stocks, stock options and awards. Fortune Magazine says it’s actually about $125 million. But—and here’s the key part—according to Fortune, if Ms. Tolstedt had been fired instead of retiring, she would’ve had to forfeit as much as $45 million of that award. Mr. Stumpf, the response to our letter confirms that you knew of this scandal. Before Ms. Tolstedt retired, it said—and this is from your letter, quote, “senior management and the board were aware of the pending litigation, investigation and discussions with our regulators, relating to sales practices when Ms. Tolstedt indicated her decision to retire.” Is that accurate, Mr. Stumpf, what this letter says? Were you personally aware of the massive problem that occurred under Ms. Tolstedt’s watch in July when she announced her retirement?

STUMPF: I was aware that we were involved in discussions with the city attorney, the OCC and the CFPB, yes.

WARREN: So you had some indication there was a massive problem?

STUMPF: We has some indication that we had one percent of our people who were doing the wrong thing.

WARREN: Also known as a massive problem.


WARREN: If you know this, did you consider firing Ms. Tolstedt before she retired?

STUMPF: Well, at the time she was reporting to our president and chief operating officer and…

WARREN: It’s a simple question, you knew there was a problem, did you consider firing her?

STUMPF: No because of her full…

WARREN: Seriously? You found out that one of your divisions had created 2 million fake accounts, had fired thousands of employees for improper behavior and had cheated thousands of your own customers, and you didn’t even once consider firing her ahead of her retirement?

STUMPF: IN fact, when I look at her full body of work and I look at the—at the customer loyalty improvement and the customer service improvement…

WARREN: Are you sure that those were not fake?

STUMPF: All the work that was done, she chose to retire and I’d also like to make one other comment because you made…

WARREN: So—so you—no just on this, you never considered firing her. So now Ms. Tolstedt has apparently retired but is also staying with the firm through the end of the year. And in the response to our letter, you state—or the person writing it—states, quote, “Ms. Tolstedt is eligible to be considered for a 2016 annual incentive award.” An incentive award for doing a great job in 2016? Mr. Stumpf, that is unbelievable. You are the chairman of the board and the CEO. In those roles, do you think it would be appropriate for Ms. Tolstedt to get another bonus on top of the millions that she has already gotten as a reward for her role in this massive scam?

STUMPF: The board will consider that and I don’t wanna prejudice the board but I also want to make one comment…

WARREN: I don’t understand that answer. You know, you and your board have already made changes. You’ve made changes to the compensation scheme for thousands of employees. You’ve sat here today and talked about that. You’ve removed sales quotas, I think you’ve told us. You’ve reformed incentives. Why can that be done quick as a wink across the entire bank but a question about cutting compensation for a highly placed executive who oversaw a massive fraud takes long deliberation? Why is that?

STUMPF: Because there’s a board governance process and we want that to work properly. And whether Carrie was retired or she was fired there’d be no difference with respect to how the board can deal with that.

WARREN: I’m sorry if she was fired, it is my understanding she would not be entitled to large parts of her compensation. This is not just a claw back issues we’re talking about she doesn’t get them to begin with if she gets fired. But you let her walk out of the door with a retirement. I don’t understand. How do you explain this to your own shareholders?

STUMPF: There is a process that the board goes through and they will do that. They’ve already met…

WARREN: Mr. Stumpf…

STUMPF: ...and everyone give their…

WARREN: I don’t understand. You keep saying there’s you know, the board, the board, as if these are strangers that you met in a dark alley. Under the bylaws of Wells Fargo and I’m quoting here: “The Chairman shall preside at all meeting of the board.”

STUMPF: (inaudible)

WARREN: You were able to make changes. Why can you not make a change here?

STUMPF: I’m not on the Human Resources Committee of the board. They have their own governance and structure. We want that to proceed in the process in which we have.

WARREN: All right so we’ll do this your way. Our letter asked a number of questions about claw backs of Ms. Tolstedt’s and other executive’s pay, including yours. Well Fargo’s answer to our letter was just basically, you punted, that the decision would be up to the board. The same punt you’ve given here. So you’re the Chairman of the Board, let me ask it this way: will you personally support clawing back all or part of Ms. Tolstedt’s pay?

STUMPF: I’m not going to in any way try to influence or prejudice the board as they do their deliberation.

WARREN: So you have absolutely no opinion on this?

STUMPF: I’m not going to opine on that—

WARREN: You’re not going to opine. You’re going to say get out there, defraud, cheat, lie, steal, and I have nothing to say about whether or not you ought to still be getting your bonus.

STUMPF: I never said, and I would, we’d never say as our company, go out there and do any of those things. We try to do the right thing every day.

WARREN: But you say if you do them, you count on Chairman Stumpf not to stand up and say you shouldn’t get your incentive bonus.

STUMPF: The board has a process…

WARREN: I think you started this whole thing by saying, don’t tell me what you say, tell me what your actions are. And your actions are, people do this and you’re not going to take a single step to shut it down. So I guess I can ask this question again: will you personally support clawing back any or all of the pay for the person in charge of compliance? Someone we haven’t talked about much today. The person who is supposed to be responsible to make sure that the bank is following the law. Will you have any recommendation about that person?

STUMPF: I’m going to have the board do their process.

WARREN: You are going to have no recommendation at all?


WARREN: Ever? At any point in this process?

STUMPF: Whatever the board accepts, whatever they do I will accept and I will support.

WARREN: You are not passive here. If you have nothing to do then what are you doing serving as Chairman of the Board? If you have no opinions on the most massive fraud that has hit this bank since the beginning of time, how can it be that you actually get to continue to collect a paycheck for being Chairman of the Board?

STUMPF: Well first of all, I disagree with the fact that this is a massive fraud. But secondly the board will do their work and I’m not going to prejudice their work. And I will accept whatever they come up with and I will be supportive.

WARREN: Now, I, you accepted all along as this fraud built up, this massive fraud, you accepted all of the performance bonuses based on the cross-selling that is at the heart of this. You watched your own stock go up by more than $200 million based in part on exactly this massive fraud. You got out and you pumped it to Wall Street and you said to Wall Street, hey we are doing such a great job cross-selling here at Wells Fargo, you should tell everybody to buy our stock. And now you turn around and say I shall remain passive and simply accept what Wells Fargo wants to do. You know, in 2008, Wall Street promised change. But it looks like it is business as usual. A giant bank cheats the little guys and the executives line their own pockets. Mr. Stumpf, you make it clear that Wall Street won’t change until we make it change. Thank you, Mr. Chair.