Wells Fargo is searching for a new chief executive, one it hopes will finally help the beleaguered bank escape Washington's anger after almost three years of scandals and mounting political pressure.
Timothy Sloan, the bank's former president and CEO, stepped aside Thursday after struggling to convince lawmakers and federal regulators that Wells Fargo had learned its lessons from a slew of controversies involving alleged customer abuses across its businesses.
The San Francisco bank once held a sterling reputation but is now looking outside the company for a new leader to right the ship. But getting on the good side of Washington will be a challenging undertaking for the bank and its next chief, with Wells Fargo still dealing with what critics call deep-seated problems and with unprecedented federal penalties.
Rep. Maxine WatersMaxine Moore WatersRemedying injustice for the wrongfully convicted does not end when they are released McCarthy says he'll strip Dems of committee slots if GOP wins House A presidential candidate pledge can right the wrongs of an infamous day MORE (D-Calif.), chairwoman of the House Financial Services Committee, has made Wells Fargo the focal point of her campaign to crack down on the nation’s largest banks. The bank is also a convenient punching bag for 2020 Democrats eager to take on Wall Street.
The Federal Reserve and Office of the Comptroller of the Currency have also called out the bank for fundamental management issues in a rare series of public rebukes.
Whoever succeeds Sloan as Wells Fargo’s new chief will need to prove the bank has turned the corner to many who openly doubt if it’s even possible. And anyone considered for the post can expect to immediately be under withering scrutiny.
“I think it’s going to be extremely challenging to eliminate any of this scrutiny and backlash via a personnel move,” said Brandon Barford, a partner at Beacon Policy Advisors and a former Senate Banking Committee aide.
“They need to be above reproach in almost all areas.”
Wells Fargo said Thursday that it would seek a new executive from outside the company to replace Sloan, a 31-year veteran of the bank.
Betsy Duke, chairman of Wells Fargo’s board of directors, said in a Thursday statement that while the bank has “many talented executives within the Company, the Board has concluded that seeking someone from the outside is the most effective way to complete the transformation at Wells Fargo.”
Lawmakers and financial sector critics had long questioned Sloan’s ability to fix Wells Fargo after he spent decades as a top company executive. They say Wells Fargo must bring in someone with a fresh perspective.
Sloan pledged to overhaul Wells Fargo’s internal checks and sales culture when he replaced former CEO John Stumpf in 2016, distancing himself from a scandal in which customers were sold services they didn't need and billed for fake accounts.
But under his helm, Sloan found the bank reeling from one controversy to the next. The bank would pay billions in federal penalties and legal settlements as new allegations of customer abuses surfaced, drawing fire from Washington along the way.
In testimony last month, Sloan tried to convince the Financial Services panel that Wells Fargo had made significant strides toward overhauling its operations.
“Wells Fargo is committed to making things right with our customers and earning back the public’s trust," Sloan said at the hearing. "We are dedicated to compensating every customer who suffered harm because of our mistakes."
But lawmakers on both sides of the aisle remained unconvinced that the longtime company executive could fix the bank or that its problems were in the past.
The reviews after the hearing were uniformly harsh.
Waters called for Sloan to be fired a day after the hearing concluded following reports that the bank would boost the chief's compensation. A spokesman for the Office of the Comptroller of the Currency said the regulator was “disappointed” in Wells Fargo’s progress.
And even the chairman of the Federal Reserve, Jerome Powell, expressed concerns. Powell said that the company “had a lot of work to do” to fix “a remarkably widespread series of breakdowns.”
Ian Katz, director at Capital Alpha Partners, said the typically quiet regulators were “unusually direct” in criticizing Wells Fargo despite Sloan’s assurances.
“It’s hard to rank these things,” Katz said, “but it was rare. It was really out there.”
One of the biggest challenges for Wells Fargo will be convincing the Fed to lift penalties that keep it from expanding and adding $1.87 trillion in assets.
Katz said Wells Fargo will need to find a new chief “who takes what the regulators are saying very seriously”
“Clearly the regulators are unhappy with his management and the way that the whole thing is being resolved,” Katz said. “It does seem like they have really deep governance issues.”
Wells Fargo's woes have also cast a shadow over the rest of their industry.
Lawmakers and financial sector critics have used Wells Fargo to criticize U.S. megabanks at large. Democrats accused Wells Fargo of being too big to manage, while Republicans bashed the company for damaging the reputation of American banks.
Big banks have sought to repair their reputation in Washington by touting their compliance with strict rules enacted through the Dodd-Frank Wall Street reform law and efforts to boost underserved communities.
The eight largest U.S. banks, including Wells Fargo, last year revived the Financial Services Forum, a trade group that advocates for issues exclusive to banks of that scale, to bolster their case.
"The Financial Services Forum remains focused on showing policymakers and others in Washington how essential the largest banks are in our $20 trillion economy and the significant progress that has been made over the past decade to ensure they can continue serving their customers in all economic conditions," said Financial Services Forum President and CEO Kevin Fromer in a statement.
Wells Fargo was one of the few banks to emerge from the financial crisis in decent financial and reputational shape. While other banks of its size were known for their extensive Wall Street operations, Wells Fargo had grown to prominence through mortgage lending and consumer-oriented services.
“Before it became a customer predator, Wells Fargo was America’s bank, focused on and serving Main Street families and businesses for more than 160 years,” said Dennis Kelleher, president and CEO of Better Markets, a nonprofit supporting stricter bank regulations.
Kelleher said Wells Fargo should “pick a CEO who will return the bank to the heights of its storied past.”