Wells Fargo chief resigns amid demands to fix the company’s culture

‘I could not keep myself in a position where I was becoming a distraction,’ said the bank’s chief and president Tim Sloan. A new leader will be hired from outside the company.

Wells Fargo firing

Wells Fargo is searching for its third leader in under three years.

On Thursday, the bank’s chief executive and president, Tim Sloan, announced his retirement.

Sloan took over in October 2016, after former Wells Fargo chief John Stumpf resigned over a scandal in which 5,300 employees were fired for creating millions of unauthorized bank and credit card accounts. Wells Fargo paid $185 million in fines.

CNN Business reported:

Beyond the fake-accounts scandal, Wells Fargo has admitted to charging thousands of borrowers for auto insurance they didn’t need and hundreds of homebuyers mortgage fees they didn’t deserve. Last year, Wells Fargo said about 545 homeowners lost their homes due to an apparent software glitch with the bank’s loan modification process.

Though his retirement will be in effect on June 30, Sloan stepped down as chief executive and president effective immediately. Wells Fargo general counsel C. Allen Parker was named the bank’s interim chief and president.

USA Today reported:

The 31-year veteran of one of the nation’s largest banks spoke of the continuing problems facing Wells Fargo during a conference call Thursday shortly after the company issued a statement that said he would retire in June.

“This was my decision based upon what I thought and believe is the best for Wells Fargo because there’s just been too much focus on me and it’s impacting our ability to move forward,” Sloan said in the call. “I just care so much about this company and so much about our team that I could not keep myself in a position where I was becoming a distraction.”

The news surprised many Wall Street analysts, as Sloan continued to have support from investors and the board of directors. However, politicians have been demanding that Wells Fargo find a new leader to change the company’s culture—something, critics allege, Sloan wasn’t able to do.

MarketWatch reported:

The unexpected retirement announcement came just minutes after Buffett, during a Thursday afternoon interview at the Gatehouse’s Hands Up for Success luncheon in Grapevine, Texas, affirmed his support of the bank chief: “Yes, 100%,” Buffett told CNBC’s Becky Quick. Less than two hours later, Sloan had stepped down.

… News of Sloan’s retirement sent shock waves through Wall Street, given that the CEO hadn’t just scored the imprimatur of investors like Buffett but had also received the backing of the San Francisco bank’s board numerous times.

CNN Business reported:

The shake-up comes as Wells Fargo has faced repeated calls from politicians, including Senator Elizabeth Warren, to find new leadership to fix its broken culture. And regulators have continued to keep Wells Fargo in the penalty box for its misdeeds.

American Banker reported:

The board had seemed patient with Sloan, but rumors would surface now and again that other candidates were being considered. Still, given tough moves by regulators — the $1.95 trillion asset cap imposed by the Fed last year, and the Office of the Comptroller of the Currency’s recent (and rare) public rebuke of the company — the natural inclination was to see this as a move to please regulators as well as politicians who have been hammering the company for failing to clean up its act and possibly being too big to manage.

… Sloan “was meant to be a breath of fresh air, but clearly time showed that bad practices continued during his tenure,” said Arjan Schütte, founder and managing partner of Core Innovation Capital, a venture capital firm that specializes in financial services. “I think his job was to be a nontoxic steward for a good asset, and I don’t think he was able to transform their culture enough.”

Wells Fargo repeated scandals have left the bank with a tattered brand image, millions in fines and legal fees, and lowered stock prices.

CNN Business reported:

Wells Fargo’s scandals didn’t just cause political headaches. The bank’s financial results were hurt by Wells Fargo’s tarnished reputation and soaring legal fees. And Wells Fargo’s stock closed on Thursday 1.4% below its pre-scandal level. By comparison, the S&P 500 has soared 29% over that span and rival bank Bank of America (BAC)has spiked 74%.

By hiring a chief from outside the company, Wells Fargo aims to finally put an end to the damage its scandals have caused.

The New York Times reported:

… The bank — known for its stagecoach logo, recalling its gold-rush roots in San Francisco — prided itself on having a strong, healthy corporate culture.

That image was shattered by scandals over fake customer accounts, unwanted products and unwarranted fees. Still, Wells Fargo looked inside for a solution by naming Mr. Sloan, a three-decade veteran of the bank, to replace John G. Stumpf as chief executive.

Now the board is taking a new approach, searching for a leader from outside, suggesting that the bank’s corporate culture was irreparably tainted.

“The board has concluded that seeking someone from the outside is the most effective way to complete the transformation at Wells Fargo,” Betsy Duke, the chairwoman of the firm’s board, said in a statement.

Wells Fargo said it hopes to find a new chief executive in the next three months, but it might take longer than that to decide on a new leader—especially with the uphill battle the new executive will face.

CNBC reported:

Most of the time, when the CEO of a big bank retires, the company’s board has already picked a successor, and that person is usually already working at the bank. That happened recently when Goldman Sachs‘ Lloyd Blankfein resigned after 12 years and president David Solomon was made CEO.

… Wells Fargo’s next leader will have to be comfortable working under the glare of regulator tops, politicians, media and customers. During his four-hour Congressional drubbing, Sloan said that the bank was operating under no less than 14 consent orders from regulators.

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