A top Democratic lawmaker has called for the break-up of Wells Fargo, the number three bank by assets in America, saying that its fake-account scandal shows that it is “too big to manage”.
The call from Maxine Waters, the top Democrat on the House financial services committee, came towards the end of a four-hour grilling on Capitol Hill for John Stumpf, the bank’s chairman and chief executive. Mr Stumpf was repeatedly challenged on what he knew — and when — about a rash of unauthorised account-opening that prompted the sackings of more than 5,000 staff over five years.
During the hearing several Congress members said that the scandal was a sign that the San Francisco-based bank was just too big to be run effectively. But Ms Waters went a step further, saying she would be working with members of the committee — including Jeb Hensarling, its Republican chairman — to cut it down to size.
“I’ve come to the conclusion that Wells Fargo should be broken up,” Ms Waters said. “It’s too big to manage and I’m moving forward to break up the bank.”
Ms Waters’ pledge is a sign of how the political narrative has evolved from a focus on banks being “too big to fail”. Eight years on from the financial crisis, the likes of Citigroup and Bank of America have all built capital and improved liquidity, and have drawn up plans for their orderly demise without burdening the taxpayer. Still, to the eyes of some lawmakers and policymakers, the scandal at Wells shows how these companies employing hundreds of thousands of people can still be a menace to consumers.
Even as Mr Stumpf was delivering his testimony, the Office of the Comptroller of the Currency said it had fined the bank $20m for improperly repossessing cars owned by members of the military.
Isaac Boltansky, an analyst at Compass Point in Washington, said that legislation mandating big-bank break-ups was unlikely in this Congress and the next, but said he expected “these headlines to continue, for the foreseeable future”.
Three weeks ago Wells was fined a record $185m by US regulators for allowing employees to open as many as 2m accounts that customers did not authorise. The bank has since committed to scrapping its sales goals and docked more than $40m from the pay of Mr Stumpf, its chief executive since 2007 and chairman since 2010, in an attempt to defuse a mounting political row.
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During the hearing Mr Stumpf was asked several times why the bank failed to get a better grip, even as it fired about 1,000 employees a year from 2011 to 2015 for a range of ethical breaches including the creation of fake accounts.
Mr Hensarling began by noting that as far back as 2009, employees started filing wrongful dismissal lawsuits alleging dubious sales practices. He said it was “beyond credibility that somebody up the food chain didn’t order, condone or turn a blind eye to it”.
Mr Stumpf said he recalled hearing about the problem for the first time “in the summer/fall timeframe” of 2013, by which time the bank was taking measures to examine the scale of the problem. But lawmakers on both sides of the aisle queried Wells’ commitment to fix it, noting that the bank was telling investors every quarter that its cross-selling ratio — the number of products supplied per household — was rising.
They also asked why the matter was not disclosed in any of Wells’ public filings — not even in the first quarter of 2016, after PwC had been hired to investigate further.
[It was] beyond credibility that somebody up the food chain didn’t order, condone or turn a blind eye to it
– Jeb Hensarling, Republican chairman of the House financial services committee
Carolyn Maloney, a Democrat from New York*, produced the hearing’s most dramatic moment as she brandished documents showing a big sale of Wells stock by Mr Stumpf in October 2013 — right after the bank “was turned into a school for scoundrels” — and challenged the CEO to explain it.
“It seems when you found out about the fake accounts, instead of helping your customers, you first helped yourself,” she said.
Mr Stumpf denied that the sale of shares worth $13m — his biggest on the open market since becoming CEO — was related to the fake-account matter, and said that it was done with “proper approvals”.
A lighter moment came as Brad Sherman, a Democrat from California, asked what plane Mr Stumpf had flown in on — a nod to the crisis-era testimonies of auto-industry executives, when it emerged they had travelled to Washington by private jet.
“Good,” he replied, when Mr Stumpf said he had flown Virgin, and American last week. “It shows Wall Street has learned something.”
*An earlier version of this story incorrectly stated that Ms Maloney was a representative from North Carolina