For the past 30 months, the investor case for keeping Wells Fargo & Co. veteran Tim Sloan as chief executive officer was his steady hand. His abrupt departure last week is bringing more turmoil instead.
The bank, already under fire from regulators and lawmakers, is again caught flat-footed as it starts what could be a lengthy search for a new CEO. No formal talks with possible successors have begun and a recruiting firm had yet to be selected as of late Tuesday, a person familiar with the matter said.
The San Francisco-based bank declined to comment on the process. One tally of supposed candidates lists more than two dozen men and women.
“What’s the new plan? What’s the new strategy going forward?” Kyle Sanders, an analyst at Edward Jones & Co., said in an interview. “It’s a big question mark for everyone right now.”
Many investors aren’t waiting for the answers. Wells Fargo is the worst performer among the biggest U.S. banks since Sloan’s departure, dropping 1.8 percent, compared with an increase of 3.3 percent for the KBW Bank Index. It’s also posted the industry’s smallest gain for the year.
KBW analyst Brian Kleinhanzl, who had the equivalent of a buy rating on the stock, downgraded the bank after Sloan’s announcement, and S&P Global Ratings cited “ increased uncertainty” in cutting its outlook to negative from stable.
“Wells Fargo is focused on becoming the most customer-focused, efficient, and innovative Wells Fargo ever,” Arati Randolph, a bank spokeswoman, said in a statement. “Our diversified business model has performed through a variety of economic and business cycles; we have industry-leading positions in many key businesses, strong credit discipline, capital and liquidity, and a world class team dedicated to meeting the financial needs of our customers.”
The lender, which said the board’s search committee met on Friday, acknowledges its outlook is in a state of flux. Chair Betsy Duke said last week that the board will “act with urgency but we want to be thorough in our search and find the candidate that we think will best fit the objectives for Wells Fargo.”
Chief Financial Officer John Shrewsberry has backtracked on guidance for financial targets through 2020, saying that expenses beyond this year are subject to the new CEO’s vision, whenever he or she arrives.
That calls into doubt the bank’s ability to meet an ambitious cost-cutting plan it’s been using to offset muted revenue growth.
“They’re in limbo,” said Jerome Dodson, chairman of Parnassus Investments, which sold its 15.3 million shares in Wells Fargo last year and has no plans to get back in. “We’ll have to see who the new CEO is.”
The next leader’s job description is daunting. More than a dozen investigations span the bank’s various business lines. In one example, agencies are probing improper altering of customer documents in the wholesale unit — which Sloan ran from 2014 to 2016.
A person familiar with the matter said the bank knew about the problem in 2017, but didn’t tell regulators until after the Federal Reserve imposed growth restrictions on the bank in February 2018.
The next CEO may also inherit 14 outstanding consent orders, business restrictions related to Wells Fargo’s “needs to improve” rating under the Community Reinvestment Act, and heightened legal expenses tied to the myriad scandals.