Wells Fargo CEO Survives to 2019 as Scandals Burn Through Bank’s Ranks
(Bloomberg) -- Tim Sloan’s biggest achievement of 2018 might be surviving the year as chief executive officer of Wells Fargo & Co. And there’s no sign that 2019 will be easier.
Sloan is finishing a year in which the Federal Reserve told the bank to stop growing, scandals emerged in more divisions, and the stock tumbled 25 percent -- harder than at its biggest rivals, JPMorgan Chase & Co. and Bank of America Corp. Politicians including Senator Elizabeth Warren repeatedly demanded Sloan be ousted. At one point, the bank’s chair, Betsy Duke, denied rumors the board was working on it.
Sloan’s survival is all the more stark by the numbers: Last year, the board issued a report on sales abuses in Wells Fargo’s branches that scrutinized the actions of more than 20 directors and executives, many of whom saw warning signs or worked in areas where misconduct flourished. Since then, all have left or taken lesser roles -- except Sloan, who was largely absolved. The latest to go were a pair of executives who went on leave in October after receiving letters from the Office of the Comptroller of the Currency. They haven’t returned.
The coming months may be turbulent: Some of the bank’s Democratic detractors will take control of the House of Representatives, gaining new powers to call hearings and issue subpoenas. Warren may hit the campaign trail for the 2020 presidential race. The politicians will watch closely as the Fed deliberates whether to lift its unprecedented cap. Shareholders typically gather in April to weigh in on Sloan’s performance.
“Wells Fargo is stuck in the spotlight,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “For Sloan, I think this means more distraction, more personal pain.”
To be sure, some of the government investigations that Wells Fargo listed in its latest quarterly report focus on problems the bank discovered itself. Sloan has undertaken a sweeping overhaul of the bank over the past two years -- looking to root out and fix past problems, address regulators’ concerns, tighten internal oversight, streamline the company’s structure and improve its earnings, Wells Fargo said in a statement. The goal is “to build the most customer-focused, efficient and innovative Wells Fargo ever.”
The San Francisco-based bank increased shareholder payouts after passing Federal Reserve stress tests with more than enough capital in June. Analysts estimate its full-year profit for 2018 will rebound to a level not seen since 2015, before the scandals erupted. Next year, net income is projected to reach a record, which could help Sloan bolster his support.
“Spring is going to be the critical period,” veteran banking analyst Charles Peabody said in an interview. “If he can’t get earnings moving in the right direction by the annual meeting next year, it’s going to be tough for him to hold his job.”
The most recent word from the board of directors is that they stand by the CEO. Duke came to his defense in September amid speculation on Wall Street that the board had approached Gary Cohn, formerly of Goldman Sachs Group Inc. and the White House, to take over.
“Rumors that Wells Fargo’s board of directors reached out to potential CEO candidates are completely false,” Duke said at the time, adding that Sloan’s unanimous support from the board “has never wavered.” For his part, Sloan, 58, said he’s prepared to stay until he reaches Wells Fargo’s retirement age of 65.
©2018 Bloomberg L.P.