Another fiasco at Wells Fargo and another round of hearings

Interior of Concord stagecoach at Wells Fargo's San Diego museum. Imagine sharing that bench for the 24 day run from St. Louis to San Francisco. Photo by James Ulvog.
Interior of Concord stagecoach at Wells Fargo’s San Diego museum. Imagine sharing that bench for the 24 day run from St. Louis to San Francisco. That’s round the clock for 24 days with the only stops to change horses and drivers. Photo by James Ulvog.

Wells Fargo got some more visibility this week for violating federal law on repossessing property from servicemembers on active duty. The CEO got another round of public thrashing, this time from the House of Representatives. The CEO and former head of community-banking forfeited a bunch of future compensation.

9/29 – Bloomberg – Wells Fargo Troubles Mount With Penalty for Soldiers’ Loans – Federal law has been in place since about 1940 that provides protection to servicemembers from collection efforts. The law currently says lenders have to get a court order before they repossess property from anyone who is on active duty. The law was rewritten in 2003 and has been updated since then.

The protections for servicemembers have only been around for, oh, about 75 years. Need I point out that is plenty of time for the compliance staff to catch on to the pertinent laws?

The Pentagon has a list of all active duty service members which lenders may access if they wish.

Two separate enforcement actions within two years against Wells Fargo for violations of that law suggests the bank may just have a systemic compliance issue.

The newest issue involves 413 alleged violations of the law. The bank agreed to pay $4 million for unlawful repossessions during a seven-year run. That’s an average restitution of about $10,000 each. In addition the OCC ordered the bank to pay a $20M fine for a decade’s worth of violations.

The bank did not admit wrongdoing in the settlement, but a representative later said in an e- mail the bank didn’t live up to its commitment and apologized for failing to do so.

The article only gives two examples of unlawful repossessions. One soldier had his vehicle repossessed while he was getting ready to deploy to Afghanistan. Another soldier had his vehicle repossessed while he was at basic training after the bank was told that the soldier was at basic training.

The previous case was below my radar. A year ago Wells Fargo was sanctioned $87M for inappropriate home foreclosures which violated the law.

Sounds like the bank needs to reboot its training and compliance programs.

9/29 – Wall Street Journal – Lawmakers Take More Swings at Wells Fargo CEO John Stumpf – This week it was the House’s turn to beat up the Wells CEO. Representatives were competing for the best line. Each of them wanted some quotable comment attached to their name. Article indicates many representatives didn’t really want any answers or explanations because they repeatedly cut off his replies.

Keep in mind each representative gets an allotted number of minutes to ask questions. They need to make sure they say the maximum possible number of quote-worthy sentences within their time limit while they wave papers in the air wearing their outrage face for benefit of the cameras.

New information in the article is the CEO and board learned about the fake accounts in the fall of 2013 before the second LA Times article was printed.

9/27 – Emily Glazer at Wall Street Journal – Wells Fargo Claws Back Millions From CEO After Scandal – I seriously doubt clawback is the appropriate description.

The CEO will surrender $41M of unvested equity awards. The now departed head of the community banking area will forfeit $19M of unvested equity awards.

Article says withdrawal of the CEO’s unvested amounts are about one-fourth of what he has accumulated.

9/29 – Francine McKenna at MarketWatch – Wells Fargo CEO’s $41 million ranks only third among executive-pay clawbacks, forfeitures – Article points out the $41M for CEO and $19M for boss of community-banking is not a clawback, which is a recovery of past compensation. Instead it is a forfeiture of future compensation. The distinction is irrelevant for headline purposes, but for those who want to understand the substance, there is a big difference.

Article goes into depth on the combined list of biggest clawbacks and forfeitures. The CEO’s is the third-largest on the list. The community banking boss’s forfeiture is the fifth largest.

Article explains the CEO will not draw a salary during the investigation and won’t get a bonus for 2016. A cited analysis estimates the total loss of future pay will be $47.8M if investigation lasts one year.

The former head of community banking forfeits all of her unvested equity awards and will not get a 2016 bonus. Her bonus in 2015 was $850K.

I have not seen in public comments any reference to how the unvested equity awards are priced, not that I’ve spent any time trying to find out. If there is any reference to stock price in the calculation of those awards, then the value has already shrunk as the stock price has dropped. I will make a guess that if there is a link to stock price there is also likely a multiplier effect based on drop in price.

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