Sen. Elizabeth Warren cut to the heart of the Wells Fargo scandal last week as she grilled CEO John Stumpf about the sham accounts that had been opened over the course of years by bank employees.
“What have you done to hold yourself accountable?” Warren asked Stumpf. “Have you resigned as CEO or chairman of Wells Fargo? Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?”
The answer to that question changed Tuesday, as Wells Fargo announced that Stumpf will forfeit $41 million in unvested stock as punishment for scandalous account-opening practices. He will also forego his $2.8 million salary while Wells Fargo investigates the troubling sales practices that led to the bank being fined $185 million, and will get no bonus for 2016.
Carrie Tolstedt, the executive who led the Wells Fargo retail banking division where roughly 1.5 million unauthorized accounts were opened over several years, will forfeit unvested shares worth about $19 million. Tolsdtedt had been set to retire at the end of the year, but she has left the company and will get no severance or bonus.
For Wells Fargo and Stumpf, the question now is can they put a number on accountability — and is $41 million that number?
Analysts at Keefe, Bruyette & Woods, a boutique investment bank specializing in the financial services sector, note that the compensation being clawed back from the two executives, which could total more than $67 million when lost salary and bonuses are included, amounts to more than 24 times the fees Wells Fargo collected from customers who had accounts improperly opened in their names.
“In our view, the monetary loss should be enough to quell the outrage of interested parties (senators, etc.) and should buy the CEO more time to deal with the ongoing scandal,” analysts Brian Kleinhanzl and Michael Brown wrote.
Warren was not quite as forgiving. “This is a small step in the right direction, but nowhere near real accountability,” she tweeted.
.@WellsFargo employees who failed to meet management's outrageous sales goals were fired.— Elizabeth Warren (@SenWarren) September 28, 2016
.@WellsFargo employees who tried to sound the alarm about the creation of fake accounts were fired. Their lives turned upside down.— Elizabeth Warren (@SenWarren) September 28, 2016
.@WellsFargo CEO Stumpf will be just fine: he keeps his job & most of the money he made while massive fraud went on under his nose.— Elizabeth Warren (@SenWarren) September 28, 2016
As I said last week: Mr. Stumpf should resign, return every nickel he made while this scam was ongoing, & face SEC & DOJ investigations.— Elizabeth Warren (@SenWarren) September 28, 2016
While Wells Fargo could still take further action and claw back more compensation, there may be limits to how much more money it can recoup in this way. As The New York Times reported, “The bank’s clawback provisions are specific about the circumstances in which it can recoup money from executives — most hinge on misconduct that forces the company to significantly revise its financial results or pay that was received based on inaccurate financial information. Neither is the case here.”
Even after giving up $41 million in unvested equity, Stumpf still holds a tremendous number of Wells Fargo shares. As of March, he owned stock and options due to vest within weeks that would be worth almost $250 million today based on Wells Fargo’s current share price. Moreover, Toldstedt could still leave the bank with stock and options worth $77 million. She was paid more than $36 million between 2012 and 2015. So the price they’re paying is arguably less painful to them than the penalties faced by employees who say they got fired or demoted for calling attention to ethical violations or falling short of the bank’s problematic sales goals.
Six former employees filed a class action lawsuit this week alleging such retribution and seeking at least $7.2 billion in damages. “We disagree with the allegations in the complaint and will vigorously defend against the misrepresentations it contains,” Wells Fargo said in a statement.
As the lawsuits mount, Stumpf is due to return to Washington for a hearing by the House Financial Services Committee on Thursday. We will get some sense then of whether the announced clawbacks turn down the heat at all. But don’t bank on it.