Senator Elizabeth Warren questions Wells Fargo CEO John Stumpf at Banking Committee Hearing — Transcript

Full transcript

1. 0:00WARREN: Thank you, Mr. Chairman.
2. 0:02Mr. Stumpf, the Wells Fargo Vision and Values Statement -- which you frequently cite -- says:
3. 0:07"We believe in values lived not phrases memorized.
4. 0:12If you want to find out how strong a company's ethics are, don't listen to what
5. 0:17its people say, watch what they do."
6. 0:19So let's do that.
7. 0:22Since this massive years-long scam came to light, you have said repeatedly, "I am accountable."
8. 0:31But what have you actually done to hold yourself accountable?
9. 0:34Have you resigned as CEO or Chairman of Wells Fargo?
10. 0:38STUMPF: The board, I serve at the...
11. 0:40WARREN: Have you resigned?
12. 0:41STUMPF: No I've not.
13. 0:42WARREN: All right.
14. 0:43Have you returned one nickel of the millions of dollars that you were paid while this scam
15. 0:48was going on?
16. 0:49STUMPF: Well first of all this was by 1 percent of our people...
17. 0:52WARREN: That's not my question...
18. 0:53STUMPF: And, and...
19. 0:54WARREN: My question, it's about responsibility.
20. 0:56Have you returned one nickel of the millions of dollars that you were paid while this scam
21. 1:01was going on?
22. 1:02STUMPF: The board will take care of that.
23. 1:03WARREN: Have you returned one nickel of the money you earned while this scam was going on?
24. 1:09STUMPF: And the board will do...
25. 1:10WARREN: I will take that as a no then.
26. 1:12Have you fired a single senior executive?
27. 1:15And by that I don't mean a regional manager or branch manager.
28. 1:19I'm asking about the people who actually led your community banking division
29. 1:25or your compliance division?
30. 1:26STUMPF: We've made a change in our regional, to lead our regional bank....
31. 1:30WARREN: I just said, I'm not asking about regional managers, I'm not asking about branch
32. 1:35managers, I'm asking if you have fired senior management.
33. 1:39The people you actually led community banking division, who oversaw this fraud, or the compliance
34. 1:45division that was in charge of making sure that the bank complied with the law?
35. 1:48STUMPF: Carrie Tolstedt...
36. 1:49WARREN: Did you fire any of those people?
37. 1:52STUMPF: No.
38. 1:53WARREN: No.
39. 1:54OK.
40. 1:55So you haven't resigned.
41. 1:56You haven't returned a single nickel of your personal earnings.
42. 1:58You haven't fired a single senior executive.
43. 2:01Instead evidently your definition of accountable is to push the blame to your low-level employees
44. 2:07who don't have the money for a fancy PR firm to defend themselves.
45. 2:12It's gutless leadership.
46. 2:14In your time as Chairman and CEO, Wells has been famous for cross-selling -- which is pushing
47. 2:21existing customers to open more accounts.
48. 2:25Cross-selling is one of the main reasons that Wells has become the most valuable bank in the world.
49. 2:31Wells measures cross-selling by the number of different accounts a customer has with Wells.
50. 2:36Other big banks average fewer than three accounts per customer.
51. 2:40But you set the target at eight accounts.
52. 2:44Every customer of Wells should have eight accounts with the bank.
53. 2:49And that's not because you ran the numbers and found that the average customer needed
54. 2:54eight banking accounts.
55. 2:56It is because "8 rhymes with great."
56. 3:00This was your rationale right there in your 2010 Annual Report.
57. 3:06Cross-selling isn't about helping customers get what they need.
58. 3:09If it was, you wouldn't have to squeeze your employees so hard to make it happen.
59. 3:14No, cross-selling is all about pumping up Wells' stock price isn't it?
60. 3:20STUMPF: No.
61. 3:21Cross-selling is shorthand for deepening relationships.
62. 3:25We -- what we do well...
63. 3:26WARREN: Whoa, let me stop you right there.
64. 3:28You say no?
65. 3:29No?
66. 3:30STUMPF: I -- I...
67. 3:31WARREN: Here are the transcripts of 12 quarterly earnings calls that you participated in from
68. 3:372012 to 2014, the 3 full years in which we know this scam was going on.
69. 3:44I'd like to submit them for the record, if I may, Mr. Chair.
70. 3:47Thank you.
71. 3:49These are calls where you personally, made your pitch to investors and analysts about
72. 3:56why Wells Fargo is a great investment.
73. 4:00And in all 12 of these calls, you personally cited Wells Fargo's success at cross-selling
74. 4:08retail accounts as one of the main reasons to buy more stock in the company.
75. 4:14Let me read you a few quotes that you had.
76. 4:18April 2012, quote, "We grew our retail banking cross-sell ratio to a record, 5.98 products
77. 4:27per household."
78. 4:28A year later, April 2013, quote, "We achieved record retail banking cross-sell of 6.1 products
79. 4:38per household."
80. 4:39April 2014, quote, "We achieved record retail banking cross-sell of 6.17 products per household."
81. 4:49The ratio kept going up and up.
82. 4:53And it didn't matter whether customers used those accounts or not.
83. 4:57And guess what?
84. 4:58Wall Street loved it.
85. 5:00Here, is just a sample of the reports from top analysts in those years, all recommending
86. 5:07that people buy Wells Fargo stock in part because of the strong cross-sell numbers.
87. 5:14And I'd like to submit them for the record.
88. 5:16SHELBY: Without objections.
89. 5:17WARREN: Thank you, Mr. Chair.
90. 5:18So when investors saw good cross-sell numbers -- they did, while this scam was going on
91. 5:24-- that was very good for you personally, wasn't it, Mr. Stumpf?
92. 5:29Do you know how much money, how much value your stock holdings in Wells Fargo gained
93. 5:34while they scam was under way?
94. 5:36STUMPF: Well, first of all, it was not a scam.
95. 5:39And cross-sell is a way of deepening relationships.
96. 5:42When customers...
97. 5:43(CROSSTALK)
98. 5:44WARREN: We've been through this, Mr. Stumpf.
99. 5:45I asked you a very simple question.
100. 5:46Do you know how much the value of your stock went up while this scam was going on?
101. 5:51STUMPF: It's all of my compensation is in our public stock...
102. 5:55(CROSSTALK)
103. 5:56WARREN: Do you know how much it was?
104. 5:57STUMPF: It's all in the public filing.
105. 5:58WARREN: You're right, it is all in the public records because I looked it up.
106. 6:02While this scam was going on, you personally held an average of 6.75 million shares of
107. 6:11Wells Stock.
108. 6:13The share price during this time period went up by about $30 which comes out to more than
109. 6:19$200 million in gains all for you personally.
110. 6:26And thanks, in part, to those cross-sell numbers that you talked about on every one of those calls.
111. 6:34You know, here's what really gets me about this, Mr. Stumpf.
112. 6:37If one of your tellers took a handful of $20 bills out of the crash drawer, they'd probably
113. 6:45be looking at criminal charges for theft.
114. 6:48They could end up in prison.
115. 6:50But you squeezed your employees to the breaking point so they would cheat customers and you
116. 6:57could drive up the value of your stock and put hundreds of millions of dollars in your
117. 7:03own pocket.
118. 7:05And when it all blew up, you kept your job, you kept your multimillion dollar bonuses
119. 7:11and you went on television to blame thousands of $12-an-hour employees who were just trying
120. 7:17to meet cross-sell quotas that made you rich.
121. 7:22This is about accountability.
122. 7:24You should resign.
123. 7:26You should give back the money that you took while this scam was going on and you should
124. 7:31be criminally investigated by both the Department of Justice
125. 7:36and the Securities and Exchange Commission.
126. 7:38This just isn't right.
127. 7:40A cashier who steals a handful of $20s is held accountable, but Wall Street executives
128. 7:46who almost never hold themselves accountable, not now and not in 2008 when they crushed
129. 7:54the worldwide economy.
130. 7:56The only way that Wall Street will change, is if executives face jail time when they
131. 8:02preside over massive frauds.
132. 8:05We need tough, new laws to hold corporate executives personally accountable and we need
133. 8:11tough prosecutors who have the courage to go after people at the top.
134. 8:17Until then, it will be business as usual.
135. 8:20And at giant banks like Wells Fargo, that seems to be cheating as many customers, investors
136. 8:26and employees as they possibly can.
137. 8:29Thank You, Mr. Chair.
138. 8:30Mr. Stumpf, as you know, some of my colleagues and I sent you a letter last week about the
139. 8:34board's plans to claw back compensation from senior executives who are responsible for
140. 8:39overseeing this scam.
141. 8:41Wells Fargo provided us with a response yesterday, I noticed that although we sent the letter
142. 8:46to you, that the response actually came from somebody else in the company, which I guess
143. 8:52is another example of holding yourself accountable.
144. 8:55I wanna focus now, on the mysterious circumstances surrounding Carrie Tolstedt's retirement in July.
145. 9:04As you know, Ms. Tolstedt ran the community banking division, the division where this
146. 9:08scam occurred for the entire time that this scam took place.
147. 9:12She was in charge of all the 5,300 employees who were fired and she oversaw the creation
148. 9:19of 2 million fake accounts.
149. 9:21Now, in July of this year just two months before the settlement was announced and before
150. 9:26those facts became public, Ms. Tolstedt retired at age 56.
151. 9:32You indicated in the letter, responding to our letter, that she walks away with over
152. 9:38$90 million in stocks, stock options and awards.
153. 9:42Fortune Magazine says it's actually about $125 million.
154. 9:46But -- and here's the key part -- according to Fortune, if Ms. Tolstedt has been fired
155. 9:53instead of retiring, she would've had to forfeit as much as $45 million of that award.
156. 10:02Mr. Stumpf, the response to our letter confirms that knew of this scandal.
157. 10:09Before Ms. Tolstedt retired, it said -- and this is from your letter, quote, "Senior management
158. 10:14and the board were aware of the pending litigation, investigation and discussions with our regulators,
159. 10:21relating to sales practices when Ms. Tolstedt indicated her decision to retire."
160. 10:27Is that accurate, Mr. Stumpf, what this letter says?
161. 10:30Were you personally aware of the massive problem that occurred under Ms. Tolstedt's watch in
162. 10:36July when she announced her retirement?
163. 10:38STUMPF: I was aware that we were involved in discussions with the city attorney, the
164. 10:43OCC and the CFPB, yes.
165. 10:45WARREN: So you had some indication there was a massive problem?
166. 10:48STUMPF: We had some indication that we had one percent of our people who were doing the
167. 10:53wrong thing.
168. 10:54(CROSSTALK)
169. 10:55WARREN: Also known as a massive problem.
170. 10:56STUMPF: Well...
171. 10:57WARREN: If you knew this, did you consider firing Ms. Tolstedt before she retired?
172. 11:02STUMPF: Well, at the time she was reporting to our president and chief operating officer
173. 11:07and...
174. 11:08(CROSSTALK)
175. 11:09WARREN: It's a simple question, you knew there was a problem, did you consider firing her?
176. 11:11STUMPF: No because of her full...
177. 11:13WARREN: Seriously?
178. 11:14You found out that one of your divisions had created 2 million fake accounts, had fired
179. 11:20thousands of employees for improper behavior and had cheated thousands of your own customers
180. 11:26and you didn't even once consider firing her ahead of her retirement?
181. 11:31STUMPF: In fact, when I look at her full body of work and I look at the -- at the customer
182. 11:37loyalty improvement and the customer service improvement...
183. 11:40(CROSSTALK)
184. 11:41WARREN: Are you sure that those were not fake?
185. 11:42STUMPF: All the work that was done, she chose to retire and I'd also like to make one other
186. 11:46comment because you made...
187. 11:47(CROSSTALK)
188. 11:48WARREN: So -- so you -- no just on this, you never considered firing her.
189. 11:53So now Ms. Tolstedt has apparently retired but is also staying with the firm through
190. 12:00the end of the year.
191. 12:02And in the response to our letter, you state -- or the person writing it -- states, quote,
192. 12:08"Ms. Tolstedt is eligible to be considered for a 2016 annual incentive award."
193. 12:17An incentive award for doing a great job in 2016?
194. 12:23Mr. Stumpf, that is unbelievable.
195. 12:25You are the chairman of the board and the CEO.
196. 12:28In those roles, do you think it would be appropriate for Ms. Tolstedt to get another bonus on top
197. 12:35of the millions that she has already gotten as a reward for her role in this massive scam?
198. 12:41STUMPF: The board will consider that and I don't wanna prejudice the board but I also
199. 12:45want to make one comment...
200. 12:46(CROSSTALK)
201. 12:47WARREN: I don't understand that answer.
202. 12:49WARREN: You know, you and your board have already made changes.
203. 12:53You've made changes to the compensation scheme for thousands of employees.
204. 12:57You've sat here today and talked about that.
205. 13:00You've removed sales quotas, I think you've told us.
206. 13:03You've reformed incentives.
207. 13:05Why can that be done quick as a wink across the entire bank but a question about cutting
208. 13:12compensation for a highly placed executive who oversaw a massive fraud takes long deliberation?
209. 13:21Why is that?
210. 13:22STUMPF: Because there's a board governance process and we want that to work properly.
211. 13:26And whether Carrie was retired or she was fired there'd be no difference with respect
212. 13:32to how the board can deal with that.
213. 13:33WARREN: I'm sorry if she was fired, it is my understanding she would not be entitled
214. 13:40to large parts of her compensation.
215. 13:42This is not just a claw back issue we're talking about she doesn't get them to begin with if
216. 13:46she gets fired.
217. 13:47But you let her walk out of the door with a retirement.
218. 13:50I don't quite understand.
219. 13:51How do you explain this to your own shareholders?
220. 13:56STUMPF: There is a process that the board goes through and they will do that.
221. 14:01They've already met...
222. 14:02WARREN: Mr. Stumpf...
223. 14:03STUMPF: ... and everyone give that their...
224. 14:04WARREN: I don't understand.
225. 14:05You keep saying there's, you know, the board, the board, as if these are strangers that
226. 14:09you met in a dark alley.
227. 14:11Under the bylaws of Wells Fargo and I'm quoting here: "The Chairman shall preside at all meetings
228. 14:18of the board."
229. 14:19STUMPF: (inaudible)
230. 14:20WARREN: You were able to make changes.
231. 14:21Why can you not make a change here?
232. 14:23STUMPF: I'm not on the Human Resources Committee of the board.
233. 14:26They have their own governance and structure.
234. 14:29We want that to proceed in the process in which we have.
235. 14:33WARREN: All right so we'll do this your way.
236. 14:35Our letter asked a number of questions about claw backs of Ms. Tolstedt's and other executive's
237. 14:41pay, including yours.
238. 14:43Wells Fargo's answer to our letter was just basically, you punted, that the decision would
239. 14:49be up to the board.
240. 14:50The same punt you've given here.
241. 14:52So you're the Chairman of the Board, let me ask it this way: will you personally support
242. 14:56clawing back all or part of Ms. Tolstedt's pay?
243. 15:01STUMPF: I'm not going to in any way try to influence or prejudice the board as they do
244. 15:08their deliberation.
245. 15:09WARREN: So you have absolutely no opinion on this?
246. 15:12STUMPF: I'm not going to opine on that--
247. 15:14WARREN: You're not going to opine.
248. 15:15You're going to say get out there, defraud, cheat, lie, steal, and I have nothing to say
249. 15:20about whether or not you ought to still be getting your bonus?
250. 15:22STUMPF: I never said, and I would, we'd never say as our company, go out there and do any
251. 15:26of those things.
252. 15:27We try to do the right thing every day.
253. 15:28WARREN: But you say if you do them, you can count on Chairman Stumpf not to stand up and
254. 15:33say you shouldn't get your incentive bonus.
255. 15:35STUMPF: The board has a process...
256. 15:36WARREN: I think you started this whole thing by saying, don't tell me what you say, tell
257. 15:40me what your actions are.
258. 15:42And your actions are, people do this and you're not going to take a single step to shut it down.
259. 15:47So I guess I can ask this question again: will you personally support clawing back any
260. 15:52or all of the pay for the person in charge of compliance? Someone we haven't talked about
261. 15:57much today.
262. 15:58The person who is supposed to be responsible to make sure that the bank is following the law.
263. 16:05Will you have any recommendation about that person?
264. 16:07STUMPF: I'm going to have the board do their process.
265. 16:09WARREN: You are going to have no recommendation at all?
266. 16:11STUMPF: I...
267. 16:12WARREN: Ever?
268. 16:13At any point in this process?
269. 16:14STUMPF: Whatever the board accepts, whatever they do I will accept and I will support.
270. 16:18WARREN: You are not passive here.
271. 16:21If you have nothing to do then what are you doing serving as Chairman of the Board?
272. 16:25If you have no opinions on the most massive fraud that has hit this bank since the beginning
273. 16:29of time how can it be that you actually get to continue to collect a paycheck for being
274. 16:34Chairman of the Board?
275. 16:35STUMPF: Well first of all, I disagree with the fact this is a massive fraud.
276. 16:39But secondly the board will do their work and I'm not going to prejudice their work.
277. 16:44And I will accept whatever they come up with and I will be supportive.
278. 16:48WARREN: Now, I, you accepted all along as this fraud built up, this massive fraud, you
279. 16:57accepted all of the performance bonuses based on the cross selling that is at the heart
280. 17:02of this.
281. 17:03You watched your own stock go up by more than $200 million based in part on exactly this
282. 17:11massive fraud.
283. 17:12You got out and you pumped it to Wall Street and you said to Wall Street, hey we are doing
284. 17:18such a great job cross-selling here at Wells Fargo, you should tell everybody to buy our stock.
285. 17:25And now you turn around and say I shall remain passive and simply accept what Wells Fargo
286. 17:31wants to do.
287. 17:32You know, in 2008, Wall Street promised change.
288. 17:37But it looks like it is business as usual.
289. 17:40A giant bank cheats the little guys and the executives line their own pockets.
290. 17:46Mr. Stumpf you make it clear that Wall Street won't change until we make it change.
291. 17:51Thank you Mr. Chair.