28 September 2016
Ms. Carrie Tolstedt was the head of the retail banking business at Wells Fargo & Company, an American international banking and financial services holding company headquartered in San Francisco, California. It is the third largest bank in America in terms of assets. Ms. Tolstedt received more than $20 million in annual bonuses from 2010 to 2015. The bonus was given to her because of the ‘strong cross-sell ratios’ in her retail banking division. Cross-selling implies selling multiple products to individual customers. In the process more than two million deposit and credit card accounts were opened without customers’ permission.
The retail-banking arm and the consumer-lending unit contributed about half of the revenue and profit growth. Furthermore, the bank recorded 18 consecutive quarters of year-over-year profit growth until 2015. In appreciation of her contribution to the bottom line, she received compensation of $9.05 million in 2015.
Authorities including the U.S. Consumer Financial Protection Bureau came to know of the creation of the unauthorized banking accounts and fined Wells Fargo $185m.
On 20 September 2016, a panel of US senators questioned Wells Fargo chief executive John Stumpf. He apologized but Senator Elizabeth Warren, who has long been a critic of the US banking industry, was not moved by his apology. “You squeezed your employees to the breaking point so they would cheat customers,” she said. “You should resign. You should give back the money you took while the scam was going on,” she added. Senate Banking Committee also noted that the bank has fired some 5,300 employees connected to the illegal sales practices but did not take any action against senior executives. Senators noted that the employees were faced with “threats of termination, mandated hours of unpaid overtime, harassment and other forms of retaliation,” for failing to achieve impossible sales targets. The employees resorted to unethical sales practices to meet the impossible targets set to them. Mr Stumpf is scheduled to appear before the House Financial Services Committee soon.
The Bank had started investigation into the scandal, hiring the law firm Shearman & Sterling to assist them. The lead independent director Stephen Sanger announced that chief executive John Stumpf will forfeit $41m in outstanding stock awards and he will also forego his salary during the time the bank conducts its investigation. The bank announced that Ms Carrie Tolstedt has left the company and is forfeiting outstanding stock awards due to her estimated at $19 million. She “will not be paid severance or receive any retirement enhancements in connection with her separation from the company,” the statement said. Previously she was set to retire with $124.6 million in stock and options. The bank refunded $2.6 million to customers in fees charged for products that were sold without authorization.
USA: Wells Fargo corruption scandal
28 September 2016