By Jeffrey Goldfarb
NEW YORK (Reuters Breakingviews) - Wells Fargo’s supersized scandal magnifies the spotlight on its chief executive. An outside review that examined a longer timeframe uncovered another 1.4 million potentially fake accounts at the U.S. mega-bank with a $2 trillion balance sheet. With the board of directors and sales practices already grudgingly refreshed, boss Tim Sloan, a 30-year Wells Fargo veteran, sticks out as a vestige of the old regime.
The findings released on Thursday corroborate an observation made a day earlier by the bank’s biggest shareholder. Asked on CNBC about the proceedings at Wells Fargo, Berkshire Hathaway CEO Warren Buffett said: “What you find is there’s never just one cockroach in the kitchen.” They have been scurrying out of the cracks at the San Francisco lender.
It has been almost a year since Wells Fargo agreed to pay nearly $200 million to settle allegations it opened over 2 million accounts customers didn’t ask for. Since then, it has found it charged 800,000 people who borrowed to buy cars for insurance they didn’t need and it stands accused of improperly modifying home loans. Now, the original malfeasance has swelled. Some 3.5 million potentially bogus credit-card and bank accounts will require over $6 million of refunds.
However slowly, Wells Fargo has been trying to contain and clean up the mess. It revised pay plans to stop rewarding retail bankers for opening multiple accounts for each customer, a hallmark of the bank’s strategy under former boss John Stumpf, ousted soon after the scandal first broke. Wells Fargo also separated the roles of chairman and chief executive, a nod to improved corporate governance. And earlier this month it elevated former Federal Reserve Governor Betsy Duke to preside over the board starting in 2018, among other changes.
There’s still Sloan, however. A stodgy board led by Chairman Stephen Sanger put him in charge last September in what seems like an auto-pilot move to replace Stumpf. Sloan’s long tenure, including as part of an executive team that should have known about the wrongdoing early on, makes it hard for him to credibly overhaul the culture at a huge institution under intense scrutiny. If Duke believes in the case for keeping him, let her make it loud and clear for shareholders. If not, reconsidering his position should be high on her agenda.
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