The new CEO of Wells Fargo (NYSE:WFC) will face a major test next month that his predecessor struggled to pass last year. On Thursday, the Senate Banking Committee announced that Tim Sloan will testify before the panel on Oct. 3 in a session titled “Wells Fargo: One Year Later.”
While there weren’t any details released about what the hearing would cover, the title implies that the session will focus on the multiple scandals that Wells Fargo has struggled through since it was revealed last September that thousands of the bank’s employees had opened millions of accounts for customers without their permission or knowledge.
Wells Fargo’s sales scandal
Wells Fargo originally estimated that employees at the bank opened approximately 1.5 million deposit accounts and applied for roughly 565,000 credit card accounts from 2011-2015 that may not have been authorized by consumers. This was done so in order to boost Wells Fargo’s cross-sell ratio — the average number of accounts/financial products used by each customer.
In the wake of this news, multiple reports came out in the media that Wells Fargo had sought for years to keep a lid on the practice of opening fake accounts. It did so by allegedly retaliating against employees that tried to bring the scandal to light, many of whom it’s been reported were fired after reaching out to their superiors, the human resources department, board members, and even former chairman and CEO John Stumpf.
Things got worse in July, when Wells Fargo disclosed that it wasn’t just checking and credit card accounts that were surreptitiously opened for unwitting customers. Between 2012 and 2017, the bank had also forced approximately 570,000 customers who had car loans with the bank to buy a particular type of insurance for their vehicles that they neither needed nor wanted. For approximately 20,000 of those customers, the additional cost “could have contributed to a default that resulted in the repossession of their vehicle,” according to the bank.
If that weren’t enough, in August, the bank updated its estimate for how many fake accounts had been opened. It now believes that as many as 3.5 million accounts may have been created without customer consent. Roughly a half million of the increase came from refinements to the original estimate, which covered the time period from May 2011 to mid-2015. The other million additions came from an expansion of the timeline back to January 2009 and forward to September 2016.
The fallout from Wells Fargo’s sales scandal
Wells Fargo initially claimed that any fallout from its fake-account scandal would be immaterial to the bank’s business. After all, the $185 million fine it paid for the malfeasance last year is little more than a rounding error compared to its $5.5 billion or so in quarterly profits.
But this has not proved to be the case. Wells Fargo’s stock has since meaningfully lagged the industry, the bank has tempered its once-aggressive sales culture, its former chairman and CEO resigned in disgrace, and three members of its board of directors will leave at the end of this year, after receiving tepid support from shareholders at the bank’s annual meeting in April.
Given all of this, it seems fair to say that Tim Sloan will face hostile questions when he testifies before the Senate Banking Committee on Oct. 3. What remains to be seen is whether he can leverage the opportunity to help repair the bank’s tarnished reputation or whether, like his predecessor, the spectacle will only add to Wells Fargo’s woes.