Wells Fargo: Chain Overreaction

After a bruising hearing in Congress, the bank announced on Tuesday that Carrie Tolsted t – former head of the retail division where staff chasing sales targets created 2m accounts without customers’ knowledge – will be forced to give up $19m in unvested stock. John Stumpf , chief executive and chairman, will sacrifice $41m. These are eye-catching sums. Dick Fuld lost plenty of money bringing Lehman Brothers to bankruptcy but only because of the collapsed stock price. At JPMorgan Chase, Jamie Dimon merely took a temporary pay cut after the “London whale” episode, where reckless trading and lax oversight cost the bank several billion dollars. For the thousands of rank-and-file staff who lost their jobs after missing aggressive sales targets or the 5,300 fired for allegedly cheating to hit them, the bosses’ comeuppance may be welcome. Shareholders should be more worried by Wells’s overreaction. It was non-executive directors, led by Stephen Sanger, former boss of General Mills, who made the statement, warning that these were only “initial steps”. It is impossible to imagine Mr Dimon or Lloyd Blankfein of Goldman Sachs ceding control of such a crisis to non-executives. Another overreaction came a week ago. Wells Fargo announced it was “ending product sales goals”. Why not retain targets so central to its model and just properly calibrate and monitor them? The original overreaction was to fire so many people in the first place. Why not recognise and rectify an obviously systemic problem before throwing out such a vast number of staff? Understandably, that angered lawmakers such as Elizabeth Warren, the Democratic senator. It is now worryingly unclear whether Ms Warren, Mr Sanger or Mr Stumpf controls the bank’s destiny. (FT)