WFC Wells Fargo and Company

   By WSJ STAFF 
 

Wells Fargo & Co. Chief Executive John Stumpf took quite a beating when he appeared last week before a Senate committee. Now, it's time for Round 2: He goes before the House Financial Services Committee to talk about his bank's allegedly "widespread illegal" sales practices Thursday.

We're chronciling the hearing as it unfolds, offering a blow-by-blow account and some real-time analysis of the proceedings.

11:11: 'There's so much blame to go around for this, it's unbelievable'

Rep. Blaine Luetkemeyer (R., Mo.) didn't give Mr. Stumpf a pass, but he also went hard on regulators for not attacking the issues at Wells Fargo sooner, given that some of the issues came to light as early as 2013. "Regulators need to be fined as well," he said. "There's so much blame to go around for this, it's unbelievable."

11:05: Stumpf flew commercial

Mr. Stumpf appears to have flown commercial to the hearings today and last week. Rep. Sherman from California asked Mr. Stumpf what airline he flew in on, possibly to catch that he came in on a private plane. But Mr. Stumpf says he traveled on Virgin America and United. While bank executives often fly private, executives have come under fire for flying such jets to hearings in Washington.

11:04: Will other big bank CEOs face the same grilling?

Now comes a call to haul the chiefs of the other big banks in front of Congress to talk about the practice of cross-selling additional products to existing customers.

Democrat Brad Sherman says that he wants to know if the "cross-selling mania" at Wells Fargo also occurred at the likes of Bank of America and Citigroup.

"I don't think you should be alone in this joyous experience," he says.

He also points out that Wells Fargo is attempting to resolve these issues with customers through mediation instead of the court system, an effort that he says will deny them "they're day in court."

He ends by saying its time to break up big banks.

10:58: Did Wells Fargo have sales quotas or sales goals?

Mr. Stumpf says that Wells Fargo did not have sales quotas but only goals.

At least some employees appear to have been under the impression that there were hard quotas and that they could lose their jobs for not meeting them.

In a December 1, 2014 anonymous entry on the website Glassdoor.com, someone who claimed to have been working for Wells Fargo for more than 5 years wrote:

"Cross Selling is the only focus now, firing employees who are great at their job in every area that should matter but if the cross selling results are not meeting the ever ridiculous quota (which continues to rise) than you may not have a job next month. Expectation for customers to say yes to cross selling, leaving you with no real control of your job security. Stress!"

In his testimony, Mr. Stumpf said, "My understanding is that people should not be terminated for not meeting sales goals."

The Glassdoor,com entry ends with this advice to management: "Cross sell expectations are going to destroy the customers experience after all tenured employees are fired. All that will be left are employees that cross sell and could not resolve a true complex issue."

10:57: Is the small business division free from sales abuse?

On the small business front: Stumpf doesn't exactly give confidence that Wells Fargo's small business division is free from sales abuse problems. When Rep. Nydia Velazquez (D-NY) asks point blank whether any problems extended to that unit, Mr. Stumpf said he'd have his staff get in touch with her staff. Rep. Velazquez responded that she'd be writing to the U.S. Small Business Administration to urge them to investigate the matter.

10:55: New incentive program by Jan. 1

Mr. Stumpf said the bank is rolling out a new incentive compensation program by "the first of the year." The bank has made tweaks to its incentive compensation program over the years as it found out about the questionable sales tactics, but it didn't seem to make enough of an impact given that the behavior continued.

10:51: McHenry: Stumpf is 'tone deaf'

As expected, both Republicans and Democrats are being very tough on Mr. Stumpf, as was the case at last week's Senate hearing. Republicans committee members have already suggested more investigations, a potential split of the Chairman and CEO roles and slammed Wells Fargo's corporate culture.

Patrick McHenry, the Republican vice chair of the committee, repeatedly grilled Mr. Stumpf on at cultre. After Mr. Stumpf responded that the culture at the bank was "strong," Mr. McHenry hit back at him for being "tone deaf" and how he he didn't grasp the impact a scandal like this could have on societal trust of the banking system.

10:50: Mr. Stumpf is thanking everyone

Mr. Stumpf sure is polite: No matter how confrontational the question, Mr. Stumpf is thanking each questioner on the House Financial Services Committee, even those who have suggested he may have been insider trading (Rep. Maloney) or just ethically corrupt in general (Rep. McHenry). Can't tell yet whether viewers will think its polite or disingenuous.

10:45: Stocks sales by Stumpf

Rep. Carolyn Maloney (D., NY) questioned Mr. Stumpf about the sales of $13 million worth of Wells share by Mr. Stump that took place on Oct. 30, 2013 - close to the timing that Mr. Stumpf said he was made aware of the issues: late 2013.

"My question was did you dump the stock after you found out about the fraudulent accounts," Ms. Maloney said. "Because it seems the timing is very very suspicious and raises a very serious question." Mr. Stumpf said he had "no views" about sales practices related to the sale of the shares.

Mr. Stumpf also said that his sale received the "proper approvals" and that he holds more than four times as many shares as required.

10:41: Honing in on internal whistleblower reports

Members of Congress appear to be honing in on internal whistleblower reports about the sales practices at Wells Fargo that occurred a number of years ago. That's led Mr. Stumpf to provide some new details on how and when executives and the board got summaries of calls to ethics hotlines.

10:40: Stumpf maintains issues were 'not material'

Stumpf continues to maintain that the bank's problems were "not material" enough to require disclosure before the $185 million settlement. As recently as the bank's second-quarter report to the SEC, which was filed Aug. 3, "the facts and circumstances, we believe, were not material."

10:39: Question on separating chairman and CEO roles

Mr. Stumpf is asked about whether Wells should separate the chairman and CEO roles. He holds both positions.

"I believe we have the right structure," he says, but adds that he serves "at the will of the board."

A follow-up question elicits the news that some members of the board heard "high-level" reports of potential sales issues in 2011. In 2013, Mr. Stumpf said he realized there was a real "issue" in the Southwestern U.S.

And in 2014, "we started to provide more information to more committees of the board."

10:36: Fed found flaws in Wells Fargo's incentive pay and sales quotas in 2011

Here's the Federal Reserve press release announcing the 2011 consent order and $85 million fine that is getting so much attention this morning.

Some of the problems alleged by the Fed do indeed sound familiar:

"The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.

These practices were allegedly fostered by Wells Fargo Financial's incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs."

10:33: Aware earlier than 2013

Chairman Hensarling and Ranking Member Maxine Waters both suggested Mr. Stumpf was aware of issues in the bank's sales business earlier than late 2013, the period in which he said he was made aware of such issues. Ms. Waters pointed out Mr. Stumpf instructed an update in an employee manual for the community banking division, reminding employees they needed to obtain customer's consent before opening an account.

10:30: Warnings from 2008?

Ms. Waters is on the clock. She says that there's evidence that employees called the company's ethics hotline as early as 2008 to report "fraud." She's hitting the same point that Mr. Stumpf and top executives should have understood the scope of the problem faster, and acted to stop it.

"Mistakes are going to happen," Mr. Stumpf says, and it wasn't until 2013 that he became aware that the problem had been "growing."

10:27: 'Someone needs to be held accountable'

Rep. Hensarling says that "no one seems to be held accountable" for the sales scandal at the bank. This echoes what many other lawmakers have said in the wake of the large clawback of Mr. Stumpf's pay: that the move was a step in the right direction but more needs to be done.

"Someone needs to be held accountable," he concludes.

10:24: Specifics about fired managers

Under questioning from Mr. Hensarling, Mr. Stumpf said that "10% or more" of the 5,300 employees fired over five years were branch managers, the first time the bank has given more specifics about the number of managers fired. He added that the bank is doing a full review of "other control functions" in the company. That could include people working in risk, compliance or legal, for example.

10:16: Hensarling: I wish I didn't have a mortgage with Wells Fargo

In concluding his opening remarks, chairman Jeb Hensarling delivered perhaps his harshest condemnation of the bank so far.

"Mr. Stumpf, I regrettably have a mortgage with your bank. I wish I didn't," Mr. Hensarling said. "If I was in the position to pay it off I would because you have broken my trust and you have broken the trust of millions of others. And it will be a long, long time to earn that back."

This raises the possibility that the fall out from Wells Fargo's troubles could extend further than trouble with regulators and lawmakers to include customer exits. Yesterday, California's Treasurer said the state was suspending some of the business it does with the San Francisco based bank.

10:16: Stumpf is sworn in

Stumpf has been sworn in. He will read a version of his written remarks. He starts by repeating that he is "deeply sorry" and "fully accountable" for the sales practices. "We should have done more sooner," he says.

He appears to be wearing a different, darker brace on his right hand than the bandage he worse last week. The bank said he hurt his hand playing with his grandchildren.

(END) Dow Jones Newswires

September 29, 2016 11:32 ET (15:32 GMT)

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