Can Tim Sloan fix Wells Fargo?
Within hours of taking the reins at Wells Fargo, new chief Tim Sloan pledged to finish the reforms begun by his predecessor, John Stumpf, who stepped aside Wednesday in an attempt to quiet the phony-accounts scandal that has rocked the company.
"It's about fixing what's problematic," Sloan said in a brief interview. Though he acknowledged that Stumpf's early retirement does not address all the concerns about Wells, he stopped short of a bold call for change. Sloan's vision was more of a steady-as-she-goes, with some tweaks.
"The changes we've made are all in motion right now," Sloan said. "It's all about executing on the plan we have in place."
But will that plan, and the hasty exit of Stumpf, be enough for the bank's many critics?
Wall Street analysts were divided on how much the changing of the guard would help, while the response from Capitol Hill was an emphatic "no."
Indeed, no sooner had Wells announced Stumpf's retirement than Democratic lawmakers issued emails calling for more accountability. Rep. Maxine Waters, D-Calif., said Stumpf and Sloan were both responsible for the roughly 2 million bogus accounts opened by thousands of employees.
"I remain concerned that incoming CEO Tim Sloan is also culpable in the recent scandal, serving in a central role in the chain of command that ought to have stopped this misconduct from happening," Waters, the ranking Democrat on the House Financial Services Committee, said in a news release.
Marty Mosby, the director of banking and equity strategies at Vining Sparks, said promoting Sloan will initially take some of the heat off Wells that has come from the investment community. Though Sloan is a 29-year veteran of Wells, his primary background is on the commercial banking side of the company and not retail, where the problems occurred, and that will give him some credibility, Mosby said.
Yet in the eyes of Washington, "he will be looked at as the same embodiment of the management team that was in place when all this happened," Mosby said. "They still have a lot of heavy lifting to do from a regulatory and political standpoint."
Sen. Sherrod Brown, D-Ohio, said in a press release that Stumpf's retirement does not answer the many questions that remain.
"There must be accountability to fix the culture within Wells Fargo that encouraged cheating and left senior executives either unwilling or unable to stop it for far too long," Brown said. "We are still waiting for answers as to how Wells Fargo plans to right its wrongs against customers and the low-paid employees who weren't given the benefit of a retirement package when they were fired for refusing to cheat."
Wells has struggled to contain the fallout from the scandal. But executives have stuck to the same script, saying that 5,300 former employees acted on their own in creating unauthorized accounts that customers never wanted. The company has reimbursed customers, eliminated sales goals and added email alerts for new account openings.
In an interview, Sloan praised Stumpf for making "a really important decision" for the benefit of the company.
"He put the company before himself and decided to retire," Sloan said. "One of the reasons why he did that is he felt there was too much focus on him and it was a negative for the company."
Sloan said that in hindsight, he would have moved quicker to address the problems of phony accounts. But he also deferred to his predecessor.
"I agree with John's description that we should have moved more quickly and made changes more quickly, but we didn't make enough of them and should have made them faster," Sloan said. "We should have remediated our customers sooner. It shouldn't have taken that long to do that."
That slow reaction is part of Wells Fargo's problem, according to one analyst.
"Their DNA is to protect the brand," said Paul Miller, a managing director and head of financial institutions research at FBR Capital Markets. "They think they can get around this by moving people around, but there is a systematic failure of compliance over sales inside the retail bank. It's gone on for years, and you can't change it by changing the CEO."
On Friday, Wells is scheduled to report third-quarter results, and Sloan likely will be asked why the bank tapped an insider to fix the problems with illegal sales practices.
"He is likely to get lingering questions about whether it's appropriate to elevate someone from inside," said Scott Siefers, a principal and analyst at Sandler O'Neill. "But at least Tim represents sort of a clean break at the top, so he'll get a fair shake to articulate his strategy and thoughts about how the company looks past this issue."
Wells paid a $190 million in a settlement with regulators on Sept. 8, which Mosby said had already been budgeted for in previous quarters.
Sloan did not propose any radical changes Wednesday.
"The vision of the company is to satisfy our customers' needs — that has not changed," Sloan said while answering questions about his plans. "We're going to continue to execute on that vision."
Discussion about whether Wells' executive shake-up is enough, and what the company needs to do next, will pick up in coming days.
Khalid Taha, a former Wells personal banker and a member of the Committee for Better Banks, said Stumpf's resignation shows the bank is finally holding someone accountable.
"For three years, bank workers like me warned Wells Fargo CEO John Stumpf about how the high-pressure sales goals at Wells Fargo were spiraling out of control — but he didn't listen," Taha said in a press release.
Paulina Gonzalez, the executive director of the California Reinvestment Coalition, called for Sloan to drop forced arbitration clauses requiring former employees and customers who were harmed by the phony accounts to go into mediation rather than file class actions. Wells has refused to do so, saying mediation is an appropriate remedy.
Gonzalez also renewed a call for the Office of the Comptroller of the Currency to downgrade Wells' Community Reinvestment Act rating and to release current exam results.
Others said Stumpf's retirement at least eliminated uncertainty. Wells announced Stumpf's departure after the markets closed, and its shares rose nearly 2%, to $46.10 a share, in after-hours trading.
All agree that the rapid developments involving Wells in the last five weeks have been breathtaking.
"The departure of one of the most respected CEOs in the industry would have been unthinkable a month ago," Siefers said.
Kristin Broughton and Alan Kline contributed to this article.