Wells Fargo CEO John Stumpf Steps Down

Citibank tends to keep the mortgage servicing to themselves. They might sell it to fannie mae or similar but you still deal with them as far as payments go.

Elizabeth Warren deserves a lot of credit for putting the heat on Stumpf. Coincidentally, one of the leaked Democratic e-mails from this week features banking lobbyists complaining to Democratic party officials about Warren:

https://theintercept.com/2016/10/11/warren-goldman-dccc/

The apparent coziness between the party and the banks is a whole other can of worms, but that Warren doesn't hesitate to go against the party grain and attack folks like Stumpf is a nice thing to see. Good on her.

> This was by no means an accident.

Thank you for pointing this out. I keep seeing comments to the effect of "Wells doesn't make any significant profit from opening bogus accounts (unused accounts are typically unprofitable to the company), so the executives couldn't have wanted this." These comments reflect a misunderstanding of modern executive compensation and the incentive structures set up for executives in large companies like this.

What happened here is called control fraud [1], and it started at the top. Stumpf repeatedly bragged to investors about Wells' supposed cross-selling abilities, and these representations were priced into Wells' stock (being good at selling would suggest future growth). Because a higher stock price maximizes his own personal compensation (and his cash compensation, i.e. bonus, as well), the incentives down the line were set to maximize this metric. Tolstedt was in charge of the retail unit and her own compensation was substantially based on this same metric. This continued down to the low-level branch employee level, where the perverse incentive structure and ability to hire and fire (and threat of such) was guaranteed to produce massive fraud. The company and its shareholders do not benefit from this (they are victims, essentially); the responsible executives do, since this increases their personal compensation.

[1] https://en.wikipedia.org/wiki/Control_fraud. You should read more about what William K. Black (former federal S&L regulator during the S&L crisis, at the Office of Thrift Supervision and its predecessors; Keating Five whistleblower; and current economics & law professor at UMKC) has to say on this topic in general.

Let me just link to Matt Levine's take: https://www.bloomberg.com/view/articles/2016-09-09/wells-far....

TL/DR: The bank probably didn't benefit on net from the fraud, even before the fines. This is more a case of management setting unreasonable sales goals and creating a terrible work environment than a conspiracy to commit fraud against bank customers.

The New York Times this morning about his supposed successor:

"As chief administrative officer from 2010 to 2011, however, Mr. Sloan’s role included overseeing Wells Fargo’s human resources and reputation management. He then became finance chief for three years. And one of his direct reports when he was promoted to chief operating officer last year was Carrie Tolstedt, who ran the offending community-banking division until earlier this year.

That makes Mr. Sloan a member of the inner circle that would have known about the wrongdoing from its early days and tried to deal with it. This group hardly covered itself in glory: It was still handing out pink slips in 2016, five years after the first bankers were shown the door. Mr. Stumpf and Ms. Tolstedt have already ceded compensation for the mess. Investigations by the board and regulators may yet implicate Mr. Sloan and others."

http://www.nytimes.com/2016/10/12/business/dealbook/wells-fa...