The Strategist

John Stumpf of Wells Fargo resigns

10/13/2016 - 14:51

General Director of Wells Fargo, John Stumpf, resigned because of a scandal, during which it became clear that the bank's employees open accounts and credit cards without consent of customers. The bank has already been fined $ 185 million, and more than 5 thousand of its employees were fired. Several states are now carrying out an investigation against Wells Fargo. Timothy Sloan, current President and former Chief Financial Officer will become new General Director of the bank.

Mr. Stumpf has to resign because the bank’s illegal strategies to increase sales. The scandal erupted around the bank at the beginning of September. Then, Consumer Financial Protection Bureau (CFPB) reported that they found "widespread illegal practices" at Wells Fargo. The bank’s employees opened accounts without customer consent. This was done to fulfill sales plans and receive bonuses. The bank was fined $ 185 million, and more than 5 thousand employees involved in these schemes were fired. Later, the prosecutor's offices of New York and California launched an investigation in respect of the bank. In late September, dismissed employees of the bank filed a lawsuit in court, accusing the organization in forcing staff to illegal actions and dismissal for refusing to participate in fraudulent schemes. They demanded compensation in the amount of $ 2.6 billion.

Wells Fargo has been heavily criticized, many experts reasoned that the main problem was in the bank’s peculiar corporate culture and loss of self-worth. At the same time, Mr. Stumpf’s leave surprised many experts as often no less serious scandals took place without changing a company's management. "We rarely see people leaving. This is quite unusual,"- said Professor of School of Law at the University of Richmond Carl Tobias.

At the same time, new assignment can also cause discontent since Timothy Sloan is Wells Fargo’s top manager as well. According to Professor of the University of Pennsylvania Peter Conti-Brown, "they had three goals when replacing Stumpf: speed, reliability and competence. If you want to act very quickly and find someone familiar with the business, you need to take your employee. If you want to hire a person with an impeccable reputation, the search will take some time."

Earlier in September, press service of Wells Fargo issued a press release with a message that John Stumpf will lose all non-guaranteed remuneration received in the form of shares - a total of $ 41 million.

As stated in the document, Mr. Stumpf will not receive his salary during internal investigation in the bank. His bonus for 2016 will also be cancelled.

Independent directors of Wells Fargo announced the bank's own investigation of practices in retail banking. The internal investigation will be conducted by a special committee of independent directors together with consulting firm Shearman & Sterling LLP.

Carrie Tolstedt, who has led Wells Fargo’s retail business during nine years until July of this year, is also leaving the bank. She will lose all non-guaranteed remuneration in the form of shares worth about $ 19 million. Her bonus for 2016 and severance pay are also cancelled.


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