To the senior team at Wells Fargo:
We write to you today on behalf of the GonzoBanker team. By way of introduction, you probably don’t know us and we have never worked for you. We consult to the mid-size and community banking space. Like you, we make our livelihood from this industry and have deep respect for the banking business and the people in it. We are writing to you with them in mind.
For many years, we all respected and admired the phenomenal brand you built—the folksy, hometown bank that scaled without compromising values. The bank that didn’t dive into reverse swaps and other Wall Street shenanigans that caused so much pain back in 2008. The bank whose CEO, Dick Kovacevich, famously proclaimed that you didn’t need that damn TARP money because you were doing fine. The bank that Warren Buffet bought for his portfolio. The bank that Jim Cramer and just about every other industry pundit called the best big bank in America.
So, after the events of last week, we’re not writing to tell you that the great brand you built is now severely tarnished. It is. Or that the behavior this uncovered was flat-out disgraceful. It was. You already know this. Fines for student loan fees. Fines for mortgage practices. And now this latest revelation of unauthorized accounts and fees. You have dragged your name down to the reputation level of payday lenders and collection agencies.
We’re not writing to ask why it took the CFPB to make this public instead of you doing it proactively. You’ve already answered that. When asked by Bloomberg why this issue had not been reported in any filings, your answer was, “We determined that the matter was not material.” Really? Not material to whom? The customers who were affected by this? Your corporate culture and the 5,300 employees you fired? Or maybe you just meant that it wasn’t material to your bottom line? We can tell you that this would have been material to most of our clients if it had involved even one employee or affected one customer.
We’re not writing to point out that you all profited from this personally. You did. We all know that. Your senior executive who led the retail business when all this happened and who “retired” in July took a package estimated by Fortune at $125 million. We can only guess how well the rest of the top brass did.
No, the reason we’re writing is to ask this: what are you going to do now? Because the way we see it, you have two choices: you can work hard and quietly to make this go away, or you can work hard and transparently to make it right. Which will it be?
The fact is that the financial impact from all of this will be pretty negligible. A $185 million fine? A literal blip in 2016 earnings, and arguably too little based on the extent of this behavior. 5,300 employees? 2% of your workforce and we’d guess that you’re hiring already. Investors, especially institutional ones? We’d wager that there will be very few institutional trades out of your stock this week based on moral outrage.
The truth is that you can probably be pretty successful over time trying to make this go away. Or you can try and make this right.
Let’s assume you really want to make it right. Let’s start with the tens of thousands of employees who are all wondering what happens now. The 5,000 employees you fired didn’t create the culture that produced this debacle. You did. Or you turned a blind eye and let it happen, which is even worse.
Your announcement this week that you would eliminate product sales incentives is an encouraging start, and it will make a difference to employee morale. However, we all know that what you say and do a year from now, and three years from now, is the real story. You need to let employees know that instead of your culture celebrating the amount of fees they can generate, you will celebrate them doing right by your customers. You need to continue to change incentive plans that back that up. You need to listen to good employees who let you know that they are being pressured to do things they don’t believe in and act on their concerns when they’re valid.
Your customers? Well, we’re sure that as part of your settlement you will be sending all sorts of correspondence and refunds to the customers that had to put up with this. But, like your employees, what really matters is what they will experience when they walk into a branch or call your call center in a year. Or three.
You can try and make this go away. Or you can try and make it right.
You also need, in some way, to apologize to your peers and competitors. Two of their biggest fears are the cost of compliance and the CFPB and other regulators overstepping their mandates. Your actions gave the CFPB absolute legitimacy for years. Now we have to worry how much time and money the rest of the banking industry will need to spend to prove that they didn’t do what you did—just like they had to after the mortgage mess of 2008.
By the way, don’t think that managers at community banks and credit unions are high-fiving each other because this occurred. They aren’t. The truth is that although it can be hard to compete with you because of your size and muscle, all they really want is a playing field that has smart, ethical competition, because at the end of the day that environment makes everybody better.
You can try and make this go away. Or you can try and make it right.
As for your shareholders, some of us here probably own your stock, at least through mutual funds. Here’s our shareholder input. If you give us a choice of $4.07 annual earnings per share including this behavior or $3.50 a share without it, we vote 100% for the latter. If that means your share price would be $45 instead of $50, so be it. We are pretty sure we speak for a large percentage of your individual shareholders and probably some institutional ones as well on this topic.
And finally, we have a suggestion for you, the senior leaders of your company. You need to take whatever amount of money each of you made in salary, bonus and options because of this and give it back. Take it out of your pocket and give it back. Or give it to charity. Because you don’t deserve a penny of it. You need to show all of your constituents, in a very concrete way, that you understand this.
You have said the right things in the last week. Now everybody is watching to see if you do the right things in the long term. Or whether you’ll try and make it go away.
-tr
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