In a flashback from a year ago, U.S. Sen. Elizabeth Warren on Tuesday told a Wells Fargo CEO that he should be fired over the bank’s massive phony accounts scandal.
Last year, the chief executive on the Senate Banking Committee hot seat was John Stumpf, who ended up retiring weeks later. On Tuesday, his replacement, Tim Sloan, endured tough questioning, but also pushed back, laying out the changes he has made as the San Francisco-based bank works to move past its problems.
“Wells Fargo is not going to change with you in charge,” said Warren, D-Mass., a fierce industry critic who has also called for changes to the bank’s board.
The No. 3 U.S. bank by assets agreed in September 2016 to pay $185 million in fines to settle claims employees opened accounts without customer knowledge as they pushed to meet high-pressure sales goals. That came about three years after a Los Angeles Times report first exposed a “pressure-cooker” sales culture that had boiled for years under the surface at the bank.
Responding to Warren’s takedown, Sloan highlighted steps by the bank’s board to oust responsible executives and to reclaim stock grants. He acknowledged that he had made mistakes, including not acting fast enough after problems came to the attention of top bank leaders, including himself, in late 2013. But he repeatedly emphasized Wells has made fundamental changes in the past year.
“I’m not afraid to make hard decisions when it’s needed,” said Sloan, wearing a red Wells Fargo pin prominently on his lapel. “And I have the support of 270,000 (employees). That’s why I think I’m the right person.”
In a later exchange with Warren, Sloan refused to say the bank would not lay off employees as part of cost-cutting plans announced since the scandal. The senator said it’s usually front-line workers, not executives, who pay the price for corporate scandals. But Sloan fired back, saying the company’s employees are his top priority and that Warren was trying to “unfairly scare” workers.
While Sloan appeared to grow frustrated with Warren’s questioning, he kicked off his remarks by apologizing once again for the bank’s actions.
“Let me be very clear about this: I am deeply sorry for letting down our customers and team members,” Sloan said in the prepared remarks, adding that Wells Fargo is “a better bank today than it was a year ago, and next year Wells Fargo will be a better bank than it is today.”
In a research report issued after the hearing, Marty Mosby, a bank analyst with Vining Sparks, said Sloan fared better than Stumpf did last year, saying he was “much more prepared for the criticism that was going to be pushed his way.” Sloan, he wrote, was also in position to outline some of the reforms the bank has taken.
“To be clear, there was no winning today; but, we believe that Mr. Sloan survived and in doing so probably solidified his position as the new leader of” Wells Fargo, Mosby wrote.
During the two-hour session, Warren wasn’t the only lawmaker to take aim at Sloan’s stewardship of the bank, which has more than 24,000 employees in Charlotte.
Sen. Sherrod Brown, D-Ohio, said Wells hasn’t done enough to fix a “corporate culture that is willing to abuse its customers and employees in an effort to pad its numbers and increase executive compensation.”
Noting a recent data breach at credit reporting company Equifax that compromised personal information of millions of customers, Brown, the committee’s top Democrat, added: “It is no wonder the public doesn’t trust our financial system.”
Lawmakers also noted that, under Sloan’s watch, revelations have emerged about problems in other parts of Wells Fargo.
In one scandal that emerged this summer, Wells admitted as many as 570,000 customers may have been charged premiums for auto insurance they did not need, a practice that in some cases may also have contributed to vehicle repossessions.
In another disclosure, from August, Wells said the Consumer Financial Protection Bureau was investigating instances where the bank made customers pay fees to extend interest rate lock periods for home mortgages. Sloan disclosed Tuesday that Wells plans to contact 108,000 customers to let them know it will provide remediation if they have been affected by such fees.
“These new developments raise a number of questions that Wells Fargo must answer,” Idaho’s Michael Crapo, top Republican on the committee, said in his opening remarks.
Brown and other senators also criticized Wells Fargo for requiring customers to use arbitration to handle customer disputes, saying consumers should be “given their day in court” if needed.
Sloan defended the use of arbitration, saying the bank pays for a mediator to work on behalf of customers to resolve complaints.
The use of arbitration by credit card companies and banks is being debated more broadly in Congress, as lawmakers weigh whether consumers should be forced to sort out disputes before a mediator instead of in a courtroom.
In July, the Consumer Financial Protection Bureau moved to ban most types of mandatory arbitration clauses. But the Republican-controlled House has voted to overturn that rule, putting it in the Senate’s court next.
At Tuesday’s hearing, Sen. Tom Cotton, R-Ark., said he doesn’t think consumers should be required to sue banks in court to settle disputes, which he said would be the effect of the CFPB rule.
North Carolina’s sole member of the committee, Republican Thom Tillis, used his time during the hearing to ask Sloan what Wells is doing to make it easy for customers impacted by the scandal and reaching out to the bank for help, so they’re not “listening to elevator music” on the phone.
Sloan pointed to different steps, including contacting 43.5 million customers during the last three months of 2016 and encouraging them to let Wells know if something doesn’t seem right with their accounts.
Some senators asked what Sloan knew about the scandal, and when and why he didn’t take action sooner, with Warren leading some of the most aggressive questioning.
In one exchange, Warren noted to Sloan that during his time as chief financial officer, from 2011 to 2014, he “aggressively” promoted Wells’ ability to open new accounts on quarterly earnings calls with investors. Sloan denied such bragging.
Sloan stood to benefit financially from such promotion, Warren said, because he owned about 2 million shares of the bank at the time: “So it looks like you had a really good thing going – Talk up Wells Fargo’s ability to open new accounts, get investors excited and, hey, if the stock goes up by a dollar you make a cool $2 million bucks.”
“You enabled this fake-accounts scam, you got rich off it and then you tried to cover it up,” Warren said. “At best you were incompetent, at worst you were complicit, and either way you should be fired. Wells Fargo needs to start over and that won’t happen until the bank rids itself of people like you who led it into this crisis.”
Sloan responded by pointing to the “very important” steps Wells’ board has taken to turn the company around, including completing in April its own investigation into the scandal. Sloan told Warren he’s the right person to run Wells because he has been making changes at the company for 30 years.
For now, Sloan is not scheduled for another hearing in Congress, although Stumpf participated in two last year.
In August, California’s Maxine Waters and two other Democrats sent a letter to House Financial Services Committee Chair Jeb Hensarling asking for a hearing into Wells, describing “seemingly never-ending developments” at the bank. It’s not clear if the Democrats will get their way.
Despite his grilling Tuesday, Sloan does appear to have an important backer in his corner: His biggest investor.
Earlier Tuesday, before the congressional hearing, billionaire investor Warren Buffett said during a CNBC interview that the Wells CEO “has my faith.”
Buffett, chief executive of Berkshire Hathaway, also said he spoke to Sloan about the Senate hearing last week during a gathering in Nevada of Wells Fargo leaders. Buffett himself testified in Congress in 1991 over a bond trading scandal involving Salomon Brothers, which Buffett had become chairman of to protect his investment in the firm.
“I told him what I would do,” Buffett said, without providing details.