Does a Golden Parachute Await Wells Fargo CEO John Stumpf?
Clawing Back Bankers’ Pay at Wells Fargo Is Harder Than It Looks
by Caleb Melby, Yalman Onaran, Boolmberg News
September 21, 2016 — 5:00 AM EDT
Members of the U.S. Senate Banking Committee are demanding that Wells Fargo & Co. claw back pay from Carrie Tolstedt, the executive whose community banking unit created 2 million unauthorized customer accounts. They’re not likely to get as much as they want.
At a hearing in Washington on Tuesday, senators cited figures eclipsing $100 million. During her three-decade career at Wells Fargo and its predecessors, Tolstedt received about $44 million in shares, $34 million in vested options and still more from cash bonuses and stock sales. But the bank’s clawback policy, like that of most U.S. companies, doesn’t allow Wells Fargo to go after those assets unless there’s a financial restatement. When the damage is reputational harm, only unvested stock awards can be recouped — in the case of Tolstedt, 56, whose retirement was announced in July, that’s about $19 million.
Decisions about clawbacks will be made by Wells Fargo’s board, Chief Executive Officer John Stumpf, 63, told senators. The board’s human resources committee, headed by Lloyd Dean, CEO of Dignity Health, a San Francisco-based operator of not-for-profit hospitals, will make recommendations to the board. “The Wells Fargo board is actively engaged in this issue,” said Stumpf, who’s also the board’s chairman.
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Businesses end up reserving clawbacks for the most extreme circumstances. JPMorgan Chase & Co. went after the traders who lost $6.2 billion during the London Whale scandal. In addition to canceling unvested bonuses, the firm asked them to return some cash they already had been paid. All but one agreed to do so, and JPMorgan sued holdout Javier Martin-Artajo in a case settled three months later. While the bank didn’t reveal how much it managed to recoup from him, the total recovered from those involved exceeded $100 million in cash and unvested stock, according to its 2012 annual report. The figure was equal to two years’ compensation for the four former employees.
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The world’s largest banks, stung by criticism for pay incentives encouraging risk-taking that led to the 2008 financial crisis, have introduced deferred-payment schemes for most executives, giving boards bigger pots of earned-but-unpaid bonuses to cancel when bad behavior is discovered and decreasing the need for legal battles. European authorities have gone further, introducing rules extending deferment periods and making sure banks have clawback clauses.U.K. regulators approved rules last year forcing banks to defer all bonuses for senior management for seven years. That’s much longer than what was proposed by U.S. regulators this year, which would force deferrals of three to four years for top executives. Most big banks had similar schedules in place before the government proposed them. The U.K. rules also allow financial firms to claw back pay for as long as 10 years in cases where “material failures” are discovered.
Emboldened by the new rule, London-based Standard Chartered Plc said it’s considering whether to recover bonuses paid to 150 senior managers responsible for losses the bank incurred this year. The bank is still conducting an investigation to determine who’s to blame and whether to claw back pay.
In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses
By GRETCHEN MORGENSON, The New York Times
SEPT. 21, 2016
John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.
But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.
This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers.
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There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same.The only difference: Mr. Stumpf, who was named Wells’s chief executive in 2007, has apologized to the customers his bank harmed with its account opening charade. Lawyers who represented troubled borrowers say no such apology came from Mr. Stumpf during the foreclosure mess.
“I sure as heck haven’t seen it,” said Linda Tirelli, a longtime foreclosure defense lawyer at Garvey Tirelli & Cushner in White Plains, who has often battled Wells Fargo. “I don’t remember ever hearing him apologize, because that would admit wrongdoing, and that’s not part of Wells Fargo’s corporate culture. Their culture is about not holding anybody at the top accountable.”
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In Tuesday’s Senate hearing, Elizabeth Warren, Democrat of Massachusetts, made a similar observation, comparing Wells Fargo’s stated rules of the road — respecting its customers — with its improper account-opening activities.When judges criticized Wells Fargo in foreclosure cases, bank officials either maintained that the situation was unusual or that the judge was being unreasonable. Only occasionally did the bank concede that it had handled a case badly.
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(T)here was the scathing 2010 contempt ruling in a Wells Fargo foreclosure case by Jeff Bohm>, a federal bankruptcy judge in Houston. To the bank’s argument that unintentional errors, including a computer malfunction, had caused Wells to demand money from two borrowers who had previously settled with the lender, Judge Bohm conceded that mistakes could happen.“However, when mistakes happen not once, not twice, but repeatedly,” he continued, “and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a monthslong violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”
Seems as though Judge Bohm was onto something.
(h/t Yves Smith @ Naked Capitalism for the outline and links and BobbyK from right here for the title)