Wells Fargo CEO Tim Sloan, who spent much of his tenure telling Congress his 31 years at the bank made him the best choice to restore its battered reputation, admitted Thursday that it’s time for someone else to take over.
“While I am confident in my ability to effectively lead Wells Fargo through the work that remains to be done, it has become apparent that the focus on me has become a distraction,” Sloan said in a call discussing his immediate departure from the San Francisco-based lender’s top management role as well as its board. “It’s best for the company that I step aside.”
The move came just weeks after Sloan fended off repeated suggestions from Democrats during House Financial Services Committee testimony that Wells Fargo has become “too big to manage” and follows repeated calls from Sen. Elizabeth Warren, D-Mass., for his ouster.
The third-largest bank in the U.S., Wells Fargo’s fortunes have seen a dramatic decline since it reaped kudos in the aftermath of the financial crisis for sufficient strength that it didn’t require a bailout, unlike rivals Citigroup and Bank of America.
The spiral dates to at least 2016, when Wells Fargo paid $185 million to settle claims that employees struggling to meet aggressive targets, which included selling as many as eight different products per household, had created millions of unauthorized customer accounts.
The revelations and the fiery congressional hearings afterward spurred the departure of then-CEO John Stumpf, whom Sloan replaced. The scandals didn’t stop, however.
As recently as February, insurers for current and former Wells Fargo leadership, from Sloan himself to board members, agreed to pay $240 million to settle investor lawsuits claiming they didn’t live up to their responsibilities to prevent the fake-accounts scandal.
“Tim Sloan needed to go, and he should not take a huge payout with him,” Sen. Sherrod Brown, the highest-ranking Democrat on the Senate Banking Committee, said in a statement on Thursday. “But Wells Fargo’s mismanagement is about more than one CEO — this bank needs a complete culture shift. Watchdogs cannot afford to let up on Wells Fargo and whoever is tapped as the new CEO must be ready to clean up the greed that has hurt millions of customers and workers.”
Warren’s office didn’t immediately return a message seeking comment.
Sloan’s role will be filled temporarily by 64-year-old C. Allen Parker, the bank’s general counsel, and the company will conduct a nationwide search for a permanent successor.
The former CEO “has been tireless and determined as he launched transformational change,” said Betsy Duke, the former Fed governor who chairs the company’s board. “Tim has had the full support of the board throughout his tenure as CEO. However, we respect his decision and agree that a new CEO at this time will best position the company.”
While Wells is continuously laying plans for succession in its top management roles, identifying employees who would make effective leaders, the board also shares Sloan’s opinion that the company needs an outsider in the top post, she said.
“This is clearly a priority for the board and we will be thorough in our search and identify the candidate we believe will best fit with the priorities that we have set,” Duke said on Thursday. A newly-formed search committee will meet for the first time on Friday, March 29.
Sloan, who earned total compensation of $18.4 million last year, said the decision to leave was his own and told investors it shouldn’t be viewed as an indicator of any “newly discovered issues” or changes in the lender’s long-term outlook.
As CEO since October 2016, he eliminated the sales targets blamed for the fake-accounts scandal, overhauled the management team and launched a thorough review to uncover and address any remaining issues.
While Sloan drove the bank’s stock price up from a post-scandal low, its gain of 8 percent during his tenure is less than a third of the double-digit growth at mega-bank rivals Citigroup, Bank of America and JPMorgan Chase.
One of the bank’s main regulators, the Office of the Comptroller of the Currency, said earlier this month that it was disappointed with Wells Fargo’s “performance under our consent orders and its inability to execute effective corporate governance and a successful risk management program.”
That statement itself was “alarming,” Kenneth Leon, an analyst with CFRA Research told the Washington Examiner, “and the optics of the Congressional hearings did not help.”
The key question now is what qualities directors will seek in a new leader, he said.
“With the current CEO, it’s been more of a continuum of the Wells Fargo tradition,” Leon said. “They had a great track record, though obviously they have issues now.”
In December, Wells Fargo agreed to pay $575 million to resolve claims with prosecutors in all 50 states and Washington, D.C., related to both the phony accounts and issues in its auto- and mortgage-lending businesses.
Before that, the bank shelled out $1 billion to settle government claims it sold some auto borrowers insurance they didn’t need under the pretense they might not qualify for their loans otherwise and charged fees to mortgage customers that it was supposed to be absorbing.
In August, the bank said it would pay $2.09 billion to settle Justice Department allegations that the bank packaged mortgages that were higher risk than they appeared into securities sold before the financial crisis.
Perhaps the most significant action, over the long term, was the Federal Reserve’s 2018 order barring the bank from expanding its total assets beyond the amount held at the end of 2017 until it resolves the regulator’s oversight concerns.
“This punishment and the fines imposed have not changed the bank’s behavior,” Financial Services Committee Chairwoman Maxine Waters, a California Democrat who stepped into the role when her party regained a majority in the House after November’s midterm elections, said during the March 18 hearing.
