Fed Bans Wells Fargo From Growing After Repeat Scandals

Wells Fargo said it’s confident it can meet regulators’ demands and that it will keep overhauling the board. It elected six independent directors in 2017 and plans to replace four directors in 2018, including three people who plan to retire before an annual shareholders meeting.

Oscar Suris, a spokesman for the bank, declined to name which directors the bank may seek to replace to comply with the Fed’s demands. Enrique Hernandez, Lloyd Dean and John Chen have been directors for more than a decade.

“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” Chief Executive Officer Timothy Sloan said in a statement. “It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress.”

The Fed instructed the bank’s board to engage in more intrusive oversight of Wells Fargo’s senior managers and come up with a plan to hold them accountable if they fall short. The board also was ordered to detail its plan to overhaul how the bank pays senior executives and how they’ll be punished if they violate bank policies or government rules, or enable “adverse risk outcomes.”

Wells Fargo’s compensation programs, the Fed said, played a large role in the bank’s compliance failures.

‘Substantial Harm’

“The firm’s lack of effective oversight and control of compliance and operational risks contributed in material ways to the substantial harm suffered,” the Fed’s supervision director, Michael Gibson, said in a separate letter to the board.

Gibson also sent a letter to the firm’s former lead independent director, Stephen Sanger, who rose to chairman as scandals began to emerge and stepped down at the end of 2017. T

he letter said Sanger was “made aware of sales practices and other compliance issues” while he was lead director but that he “did not appear to initiate any serious investigation or inquiry into the sales practice problems” or propose the board do so, including by asking company managers for more information.

In a third letter, Gibson told former Chairman and CEO John Stumpf that he presided over “pervasive and serious compliance and conduct failures” and didn’t take action to address them, even as he “continued to support the sales goals that were a major cause of the problem.”