Senator Elizabeth Warren questions Wells Fargo CEO John Stumpf at Banking Committee Hearing

WARREN: Thank you, Mr. President. Mr. Stumpf, Wells Fargo's Vision and Values ​​Statement, which you quote frequently, says: "We believe in lived values, not memorized phrases. If you want to know how strong a company's ethics are, don't listen to it. "His people say, look what you do." So let's do that. Since this massive, years-long scam came to light, you have repeatedly said, "I am responsible." But what have you really done to hold yourself accountable? Have you resigned as CEO or president of Wells Fargo? STUMPF: On the board, I serve on the... WARREN: Have you resigned? STUMPF: No, I haven't.

WARREN: Okay. Have you returned a nickel of the millions of dollars you were paid while this scam was going on? STUMPF: Well, first of all, this was for 1 percent of our people... WARREN: That's not my question... STUMPF: And, and... WARREN: My question, it's about accountability. Have you returned a nickel of the millions of dollars you were paid while this scam was going on? STUMPF: The board of directors will take care of that. WARREN: Have you returned five cents of the money you made while this scam was going on? STUMPF: And the board of directors will serve...

WARREN: So I'll take that as a no. Have you fired a single top executive? And by this I don't mean a regional manager or branch manager. I'm asking about the people who actually ran your community

banking

division or your compliance division. STUMPF: We've made a change at our regional bank, to lead our regional bank... WARREN: I just said, I'm not asking about regional managers, I'm not asking about branch managers, I'm asking if you've fired senior management. . The people who actually ran the community

banking

division, which oversaw this fraud, or the compliance division that was in charge of making sure the bank complied with the law?

STUMPF: Carrie Tolstedt... WARREN: Did you fire any of those people? STUMPF: No. WARREN: No. Okay. So you haven't resigned. You haven't returned a single cent of your personal earnings. You haven't fired any senior executives. Instead, evidently his definition of responsible is blaming his low-level employees who don't have the money for a fancy PR firm to defend themselves. It is cowardly leadership. In his time as chairman and CEO, Wells has been known for cross-selling, which is pushing existing customers to open more accounts. Cross-selling is one of the main reasons Wells has become the most valuable bank in the world.

Wells measures cross-selling by the number of different accounts a customer has with Wells. Other large banks average fewer than three accounts per customer. But you set the goal at eight accounts. Each Wells customer should have eight accounts at the bank. And that's not because you crunched the numbers and discovered that the average customer needed eight bank accounts. It's because "8 rhymes with cool." This was their reasoning in their 2010 Annual Report. Cross-selling is not about helping customers get what they need. If that were the case, you wouldn't have to put so much pressure on your employees to make this happen.

No, cross-selling is all about increasing the price of Wells stock, isn't it? STUMPF: No. Cross-selling is shorthand for deepening relationships. We... what we do well... WARREN: Wow, let me stop you right there. Do you say no? No? STUMPF: I... I... WARREN: Here are the transcripts of 12 quarterly earnings calls that he participated in from 2012 to 2014, the entire 3 years that we know this scam was occurring. I would like to present them for the record, if I may, Mr. President. Thank you. These are calls where you personally presented your pitch to investors and analysts about why Wells Fargo is a great investment.

And in all 12 calls, you personally cited Wells Fargo's success in cross-selling retail accounts as a major reason for buying more of the company's stock. Let me read you some quotes you had. April 2012, quote: "We increased our retail banking cross-sell rate to a record 5.98 products per household." A year later, in April 2013, it is quoted: "We achieved a record retail banking cross-sell of 6.1 products per household." April 2014, quote: "We achieved a record retail banking cross-sell of 6.17 products per household." The ratio kept going up and up. And it didn't matter whether customers used those accounts or not. And guess what?

Wall Street loved it. Here's just a sampling of top analyst reports from those years, all recommending that people buy Wells Fargo stock in part because of strong cross-selling numbers. And I would like to send them for the record. SHELBY: No objection. WARREN: Thank you, Mr. President. So when investors saw good cross-selling numbers (they did while this scam was going on), that was very good for you personally, wasn't it, Mr. Stumpf? Do you know how much money, how much value your shares in Wells Fargo gained while the scam was going on? STUMPF: Well, first of all, it wasn't a scam.

And cross-selling is a way to deepen relationships. When customers... (CROSSTALK) WARREN: We've been through this, Mr. Stumpf. I asked you a very simple question. Do you know how much the value of your stock went up while this scam was going on? STUMPF: It's just that all my compensation is in our public shares... (CROSSTALK) WARREN: Do you know how much it was? STUMPF: It's all in the public file. WARREN: You're right, it's all in public records because I looked it up. While this scam was taking place, you personally owned an average of 6.75 million shares of Wells Stock.

The stock price during this period rose around $30, which equates to over $200 million in profits, all for you personally. And thanks, in part, to those cross-selling numbers that you talked about on each of those calls. You know, this is what really bothers me about this, Mr. Stumpf. If one of his tellers took a handful of $20 bills out of the emergency drawer, he would probably be charged with criminal theft. They could end up in prison. But you stretched your employees to the limit to deceive customers and were able to increase the value of your stock and put hundreds of millions of dollars in your own pocket.

And when it all blew up, you kept your job, kept your multimillion-dollar bonuses, and went on television to blame thousands of $12-an-hour employees who were simply trying to meet the cross-selling quotas that made you rich. It's about responsibility. You should resign. He should return the money he took while this scam was taking place and should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission. This is simply not right. A teller who steals a handful of $20 bills should be held accountable, but Wall Street executives are rarely held accountable, not now or in 2008, when they crushed the global economy.

The only way Wall Street will change is for executives to face prison sentences when they preside over massive frauds. We need tough new laws that hold corporate executives personally accountable, and we need tough prosecutors who have the courage to go after the people at the top. Until then, everything will continue as usual. And at giant banks like Wells Fargo, that looks like fooling as many customers, investors and employees as possible. Thank you, Mr. President. Mr. Stumpf, as you know, some of my colleagues and I sent you a letter last week about the board's plans to recover compensation for the senior executives responsible for overseeing this scam.

Wells Fargo provided us with a response yesterday. I realized that even though we sent you the letter, the response actually came from someone else in the company, which I guess is another example of holding yourself accountable. I want to focus now on the mysterious circumstances surrounding Carrie Tolstedt's retirement in July. As you know, Ms. Tolstedt headed the community banking division, the division where this scam occurred, for the entire time it took place. She was in charge of the 5,300 employees who were laid off and oversaw the creation of 2 million fake accounts. Now, in July of this year, just two months before the deal was announced and before those facts became public, Ms.

Tolstedt retired at age 56. You indicated in the letter, in response to our letter, that you walk away with more than $90 million in stock, stock options and awards. Fortune magazine says it's actually about $125 million. But, and here's the key part, according to Fortune, if Ms. Tolstedt had been fired instead of retiring, she would have had to forfeit up to $45 million of that severance. Mr. Stumpf, the response to our letter confirms that you were aware of this scandal. Before Ms. Tolstedt retired, she said, and this is from her letter, I quote: "Senior management and the board were aware of the pending litigation, investigation and discussions with our regulators, related to sales practices. when Ms.

Tolstedt indicated her decision to retire." Is what this letter says accurate, Mr. Stumpf? Were you personally aware of the enormous problem that occurred under Ms. Tolstedt's leadership in July when she announced her retirement? STUMPF: Yes, I knew we were involved in conversations with the city attorney, the OCC and the CFPB. WARREN: So you had any indication that there was a huge problem? STUMPF: We had some indications that one percent of our people were doing the wrong thing. (CROSSTALK) WARREN: Also known as a massive problem. STUMPF: Well... WARREN: If you knew this, did you consider firing Ms.

Tolstedt before she retired? STUMPF: Well, at the time she was reporting to our president and COO and... (CROSSTALK) WARREN: It's a simple question, you knew there was a problem, did you consider firing her? STUMPF: No, because she's full... WARREN: Really? She discovered that one of her divisions had created 2 million fake accounts, she had fired thousands of employees for inappropriate behavior and had deceived thousands of her own clients and she didn't even think about firing her before the her retirement? STUMPF: In fact, when I look at all of their work and I see the improvement in customer loyalty and the improvement in customer service... (CROSSTALK) WARREN: Are you sure they weren't fake?

STUMPF: All the work that was done, she decided to retire and I would also like to make another comment because you did... (CROSSTALK) WARREN: So... then you... not only in this, you never considered firing her. So now Ms. Tolstedt has apparently retired, but she too will remain with the company until the end of the year. And in the response to our letter, you state (or the person writing it) states, quote: "Ms. Tolstedt is eligible to be considered for a 2016 annual incentive award." An incentive award for doing great work in 2016? Mr. Stumpf, that's incredible. You are the chairman of the board of directors and the chief executive officer.

In those roles, do you think it would be appropriate for Ms. Tolstedt to get another bonus on top of the millions she already received as a reward for her role in this massive scam? STUMPF: The board will consider it and I don't want to prejudice the board, but I also want to make a comment... (CROSSTALK) WARREN: I don't understand that answer. WARREN: You know, you and your board already made changes. It has made changes to the compensation plan of thousands of employees. You sat here today and talked about that. You've eliminated sales quotas, I think you've already told us that.

You have reformed the incentives. Why can that be done as quickly as the blink of an eye throughout the bank, but the question of cutting the compensation of a top executive who oversaw a massive fraud requires long deliberation? Why is that? STUMPF: Because there is a board governance process and we want it to work properly. And if Carrie was removed or fired, it would make no difference to how the board can deal with that. WARREN: I'm sorry if she was fired, my understanding is that she wouldn't be entitled to much of her compensation. This isn't just a recovery issue we're talking about, she won't get them to begin with if she gets fired.

But you let her out the door with a retirement. I don't understand it at all. How do you explain this to your own shareholders? STUMPF: There is a process that the board goes through and they will do it. They already met... WARREN: Mr. Stumpf... STUMPF: ...and everyone gives him their... WARREN: I don't understand. You keep saying that she's, you know, the board, the board, like they're strangers you met in a dark alley. According to Wells Fargo's bylaws, and I quote here: "The president shall preside at all meetings of the board." STUMPF: (inaudible) WARREN: You were able to make changes.

Why can't you make a change here? STUMPF: I am not on the Human Resources Committee of the board of directors. They have their own governance and structure. We want that to continue in the process we are in. WARREN: All right, we'll do this your way. Our letter raised a number of

questions

about the recovery of Ms. Tolstedt's salary and that of other executives, including yours truly. Wells Fargo's response to our letter was basically, you said, that the decisionIt would depend on the board. The same clearance you've given here. If you are the chairman of the board of directors, let me ask you this way: would you personally support the recovery of all or part of Ms.

Tolstedt's salary? STUMPF: In no way am I going to try to influence or harm the board as they conduct their deliberations. WARREN: So you have absolutely no opinion on this? STUMPF: I'm not going to give an opinion on that... WARREN: You're not going to give an opinion. You're going to say go out, defraud, cheat, lie, steal, and I have no say in whether or not you should still get your bonus? STUMPF: I never said, and we would never say, as our company, go out and do any of those things. We try to do the right thing every day.

WARREN: But you say that if you do, you can count on President Stumpf not to stand up and say that he shouldn't get the bonus incentive. STUMPF: The board has a process... WARREN: I think you started all of this by saying, don't tell me what you say, tell me what your actions are. And your actions are that people do this and you are not going to take a single step to stop it. So I guess I can ask this question again: would you personally support recovering some or all of the compliance person's salary? Someone we haven't talked much about today.

The person who is supposed to be responsible for ensuring that the bank complies with the law. Do you have any recommendations about that person? STUMPF: I'm going to ask the board to do their process. WARREN: You're not getting any recommendations? STUMPF: I... WARREN: Ever? At some point in this process? STUMPF: Whatever the board accepts, whatever they do, I will accept it and support it. WARREN: You're not passive here. If you have nothing to do, what do you do as president of the board of directors? If you have no opinion on the most massive fraud this bank has suffered since the beginning of time, how can you continue to receive a salary for being chairman of the board of directors?

STUMPF: Well, first of all, I don't agree with the fact that this is a massive fraud. But secondly, the board will do its job and I am not going to undermine its work. And I will accept whatever they come up with and support them. WARREN: Now, I, you accepted all the time as this fraud was piling up, this massive fraud, you accepted all the performance bonuses based on the cross-selling that is at the heart of this. You saw your own stock rise by more than $200 million due in part to exactly this massive fraud. You went out and pitched it to Wall Street and told Wall Street, hey, we're doing a great job of cross-selling here at Wells Fargo, you should tell everyone to buy our stock.

And now you turn around and say, I'm going to remain passive and just accept what Wells Fargo wants to do. You know, in 2008, Wall Street promised change. But it seems that everything remains the same. A giant bank deceives the little ones and the executives line their pockets. Mr. Stumpf, make it clear that Wall Street won't change until we make it change. Thank you Mr. President.