Wells Fargo, America’s fourth-largest bank, is encountering difficulty recruiting a new chief executive officer following Tim Sloan’s March resignation after failing to get the company’s problems under control.
Since Sloan’s departure, General Counsel C. Allen Parker has been serving in the interim, but Wells Fargo wants to hire a permanent chief from outside the company.
The bank is hoping a fresh face will help turn around the bank’s badly damaged image, as Sloan and John Stumpf, the CEO he succeeded, were both longtime employees during a series of scandals dating back to 2016. Parker joined Wells Fargo in 2017 to pick up the post-scandal pieces.
CEO successors are typically chosen months, if not years, in advance. This path unfortunately isn’t available to Wells Fargo. It has approached several big bankers, such as JP Morgan Chase’s co-chief operating officer, Gordan Smith, PNC Financial Services Group’s CEO William Demchak, and US Bancorp’s former CEO Richard Davis, but it has not been able to settle on its next boss, according to The Wall Street Journal.
Demchak and Davis have reportedly turned the offer down, and Smith, who the Journal said has told confidants he’d rather stay put, is considered a frontrunner for his boss Jamie Dimon’s CEO job. Dimon, 63, has said he’d stay in charge for four more years, but there’s no telling if that will slip. If Chase’s chief sticks around, it’s less likely the 60-year-old Smith would become JP Morgan’s next leader.
So why the reluctance to have “CEO, Wells Fargo” on a resume in 2019?
What Happened
The problems began two and a half years ago when 1.5 million fake accounts and more than 500,000 fake credit cards—all in existing customers’ names without their knowledge or permission—were created by Wells Fargo workers in response to extreme sales pressure. That led to the firing of not just 5,000-plus low-level employees, but then-CEO Stumpf as well. This also cost the bank more than $300 million in fines and payments to customers who filed a class action lawsuit. It was revealed several months later that there may have been as many as 3.5 million fake accounts created.
Other issues include additional lawsuits ranging from overcharging small business retailers in 2017 to the city of Sacramento suing the bank for discrimination against black and Latino customers in 2018. Billions in fines were paid to the SEC and other government organization also were levied for Wells Fargo’s role in the housing bubble, and altering business information without client knowledge. Even the Federal Reserve expressed dismay over Wells Fargo, as it announced restrictions to the bank’s growth last year in response to “widespread consumer abuses and compliance breakdowns.”
This came to a head for Sloan, as the then-CEO continued to face mounting pressure from regulators and lawmakers to hit the reset button on the bank’s strategy. At one point, officials at the Office of the Comptroller of the Currency debated forcing board or senior management changes.
Sloan decided to retire in March after 31 years with Wells Fargo. He told investors on a call shortly after that he could not keep himself in a position where he was “becoming a distraction.”
Ironically, Wells Fargo’s pre-scandal reputation was platinum, being lauded as one of the few institutions to come out of the financial crisis with minor damage.
A Tall Task and Then Some
So what’s needed from this new CEO if Wells Fargo wants a full recovery? The next chief will need to rebuild relationships in Washington as well as earn back the trust of Wells Fargo’s jaded clients, both of which will take years.
In an April interview with the Financial Times, storied investor Warren Buffett, who happens to be the bank’s largest shareholder, said the new head “shouldn’t come from Wall Street,” JP Morgan, or Goldman Sachs. His best buddy Charlie Munger agreed, telling the Journal the two Berkshire Hathaway execs “don’t like the Wall Street crowd that is making the damn decisions.”
Wells Fargo representatives declined comment.
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Tags: CEO, Jamie Dimon, JP Morgan Chase, Lawsuit, Scandal, Tim Sloan, Warren Buffett, Wells Fargo