The Strategist

Better late than never: Tim Sloan leaves Wells Fargo

04/01/2019 - 14:47

Recently Wells Fargo Bank has been constantly appearing in the center of scandals, and now Tim Sloan, its CEO, announced his resignation. The bank’s problems began in 2016, when it became known that its employees had created several million fraudulent accounts and credit cards. Since then, Wells Fargo has regularly been becoming the focus of regulators, and watchdogs constantly demanded renewal of its management and major changes in the bank itself.

MoneyBlogNewz via flickr
MoneyBlogNewz via flickr
Tim Sloan, CEO and President of Wells Fargo, submitted his resignation letter to the board of directors of the financial institution. Mr. Sloan will leave his posts as well as his place on the board of directors immediately, and in general he will leave the bank, where he worked for 31 years, in June. Allen Parker, Head of the Legal Department of the Bank, was appointed Acting General Director and President; previously he was the head of the law firm Cravath, Swaine & Moore. Wells Fargo’s management immediately began to search for a candidate for these positions.

The last few years have been difficult for Wells Fargo - it all started with a big scandal that broke out in 2016. Then it became known that bank employees opened more than 2 million of accounts and credit cards without consent of customers. The goal was to fulfill sales plans and get bonuses for that. Then the bank was fined $ 185 million, 5.3 thousand employees were dismissed, and CEO John Stumpf had to resign. Mr. Sloan, who previously held the posts of president and chief financial officer became the new head of the bank.

However, Wells Fargo’s problems were not over by that time. Last year it became known that several hundred mortgage borrowers who were lending at the bank were evicted from their homes due to a computer malfunction in the system.

Also in February of last year, the US Federal Reserve banned Wells Fargo from increasing its net assets until the bank improves internal processes and management. This step on the part of the Fed was unprecedented. Since then, the bank's shares have fallen by 23%. In April last year, the bank was also fined $ 1 billion.

A few weeks ago, Mr. Sloan had to testify about these scandals in the US Congress.

Mr. Sloan promised that the bank would fix everything, but the congressmen did not like his excuses. In the opinion of many of them, the bank had promised to improve its work more than once, but nothing has been done in the end.

Investors welcomed resignation of Mr. Sloan as Wells Fargo shares rose by 2.6%. Nevertheless, the bank’s problems are unlikely to end with his departure since regulators and Congress will continue to demand major changes and reorganization from the bank. The Massachusetts senator and Democratic presidential candidate Elizabeth Warren, who repeatedly called to replace Mr. Sloan with a leader who would not come from Wells Fargo, said in connection with his departure: “How timely. Tim Sloan should have left a long time ago. ”

The fact that Tim Sloan was not the most suitable candidate to help the bank through the crisis was discussed when he was appointed General Director. Many doubted that a serious change in the bank could be made by a person who had worked there for several decades and, among other things, headed a unit that turned out to be in the center of a scandal with fake accounts. Now, according to experts, Wells Fargo will definitely have to look for a candidate not related to the bank, and it is possible that some of its other leaders will be replaced. “If they really wanted to change, Sloan had to leave and they had to look for a new management team outside the bank, ” says William Klepper, a professor at Columbia University.