WFC - Wells Fargo

[eclecticvalue]

This is also happening at Santander.

[Uccmal]

Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

 

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid. 

[wisdom]

I have heard of cases in Canada where this is happening with mortgages but is buried by the banks everytime they catch people. The worst one was this person doing mortgages on lots as if it had a house on it.

[Liberty]

Matt Levine on this:

 

https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts

[Travis Wiedower]

Matt Levine on this:

 

https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts

 

Reminded me of Charlie Munger's quote: "Perhaps the most important rule in management is 'Get the incentives right.'" It's a lot easier said than done though.

[whiterose]

It's not only an issue related to WFC, but Stumpf tops the list:

 

https://www.thenation.com/article/your-tax-money-is-subsidizing-wall-street-bonuses/

 

Say, for example, you are Wells Fargo chairman John Stumpf. Between 2012 and 2015, you received $155 million in “performance-based” pay above your actual salary, which is already quite generous. You also saved your company a lot of money by getting paid so much—according to a new study by the Institute for Policy Studies, Wells Fargo was able to claim a $54.2 million tax subsidy in those years based solely on Stumpf’s pay.

[bearprowler6]

Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

 

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

 

I will leave it to others to debate on here Stumpf's role in all of this---in my view however he either knew or should have known what 5000 of the workers in his bank were doing. I also agree that all bank executives are grossly overpaid.

 

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

 

Several months ago a poster on here suggested that many skeletons will be uncovered once the dynamic duo of Buffett and Munger are no longer involved with Berkshire. I share this view and suggest that the news on Wells is but one example of the type of information on Berkshire Hathaway investments/holdings that will become common place at that time.

[Patmo]

The good old classic "meet your target - or else" tone at the top will invariably lead to this kind of thing... 100% probability of happening. Morally speaking, these 5k workers are not the ones that should have been fired. One soldier goes rogue, it's the soldier's fault. A whole platoon goes rogue, it's the general's fault...

 

I'm a little surprised they have that kind of vision over at WFC but not that much - after all, a bank is a bank is a bank...

[fareastwarriors]

Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

 

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

 

I will leave it to others to debate on here Stumpf's role in all of this---in my view however he either knew or should have known what 5000 of the workers in his bank were doing. I also agree that all bank executives are grossly overpaid.

 

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

 

Several months ago a poster on here suggested that many skeletons will be uncovered once the dynamic duo of Buffett and Munger are no longer involved with Berkshire. I share this view and suggest that the news on Wells is but one example of the type of information on Berkshire Hathaway investments/holdings that will become common place at that time.

 

I won't be surprised.

 

[Libs]

I have been a WFC fan but this bothers me, and I think there are other similar shoes to drop. Specifically, the in-branch "financial advisors" who churn customers in and out of mutual funds and other commission products. I know a guy who did this...it's quite sleazy. They would sift through customer accounts and call on people with "extra cash" or CD's expiring. I'm sure it's also true at Chase, B of A, etc.

 

These in-branch guys have huge pressures to produce, also.

 

At some point there will be regulatory blow-back about this.

[Guest notorious546]

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

 

why do they have a duty to report this publically? i dont see why or how that is the case.

[bearprowler6]

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

 

why do they have a duty to report this publically? i dont see why or how that is the case.

 

I suggest you check out the various definitions of "duty" on line. I particularly like the definition offered by BusinessDictionary.com regarding scope of employment:

 

"Responsibility of conduct, function, or performance that arises from an express or implied contract, or from the fact of holding an office or position"

 

 

[johnny]

I remember during my last few years as a Wells customer getting hilariously heavy savings-account pressure every time I had to do something that required a banker's assistance. It would just be a massive full-court press pitch followed by me asking what the rate was and getting a reply like "0.05%".

 

As embarrassing as this is, is it apparent that this represents a massive moral failure at management level? It just seems like a rather stupidly designed and naively implemented incentive system. All of those phantom accounts being made couldn't have been very lucrative for the company; I know none of the 3 savings accounts I ended up getting opened resulted in an increase in deposits (or even a meaningful change from C to S).

 

Maybe I missed it, but I just don't see this being a disaster?

[valueorama]

The thing that worries me, is this quote from Buffett "There's never just one cockroach in the kitchen?"

[oddballstocks]

Here's another random data point on WFC.  I received notice today that their 2014 insider ownership filing with the Federal Reserve is finally complete.  This is nearly a year late, and the information in this report doesn't vary much from the SEC filing.  The fact that it took them so long to get 2014 correct is just strange. 

 

In terms of who this damaged.  It damaged the consumers who had accounts opened in their name, credit card accounts that hit their credit reports and those who had to pay service fees on accounts they never knew they owned.

 

But the bigger issue as noted in this thread is this is indicative of a management failure.  It wasn't a single rogue employee, when 100 are fired maybe it's a single manager whose to blame.  When it's 1,000 maybe a division director, but when 5,300 are let go there is some rot reaching fairly high up.

 

I've worked with public companies that had screwed up incentives.  Management was always a few strides further ahead compared to the line employees.  In cases where employees had to waste/abuse company resources management always took the "hear no evil, see no evil" approach as if nothing was happening.  But what the employees did furthered their own goals and added to their bonus, so it was in their best interest to ignore this.

 

Incentives were wrong, and internal controls were lacking.  I've heard the same accusation levied at JPM as well.  Sometimes lack of controls results in The London Whale, other times it results in millions of fake accounts. 

[mikek]

I worked at Wells Fargo 10 years ago at the retail level and this was all going on.  I left a long time ago but it's still going on today and it was going on a decade before I got there.  The wrong people have been fired. This goes way up from the district managers, market directors, Regional managers, all the way up to the CEO.  This was beyond systematic and was actually encouraged.  There are sales jobs and there is the Wells Fargo sales way.  A lot of articles are portraying that this was from greedy bankers and branch managers at the banking level but in reality this was forced on the retail level.  The things that went on there were beyond laughable.  I would wager that a huge percentage of bank employees were doing shady stuff to just keep their jobs.  The people at the bank level weren’t doing these things to make money.  I would wager that those people were making an extra 100-500 dollars per quarter due to unethical behavior.  They were doing it because they were being constantly harassed by upper management.

 

Picasso-

 

"My old Wells sales guy had opened up close to twenty accounts for me once. Just journaled money back and forth all the time to make them appear active. He used to tell me how they would keep giving everyone crap about various hurdles (daily hurdles in fact) which sounded like a bizarre way of doing business. I never felt comfortable buying the stock for that reason alone."

 

100% true and was very common.  These guys honestly managed to the daily numbers.   

 

Now there are obviously wide ranges of shady stuff, a lot of it wasn't considered fraud but people were doing things that didn't make any logical sense to just meet the numbers.  I would be completely shocked if there were actually only 2 million fake accounts.  Branch Managers were taking 4 conference calls a day- every 2 hours to report the numbers.  The incentive system was setup so that a 13 year old teen checking account with 1 penny would give a sales person the same as having a client open up a 10 million dollar account.  It was beyond insane.  You could be the #1 one banker in the district and have a slow week and next thing you knew they were threatening to write you up.  This was not a case of some rogue employee's doing dumb stuff; it was and is the actual culture at Wells Fargo.  I don't think much will change there, the only way you change the system is you actually go after the people that are creating that environment.  You need to go after the executives criminally and make them personally liable.

 

Patmo-

 

"The good old classic "meet your target - or else" tone at the top will invariably lead to this kind of thing... 100% probability of happening. Morally speaking, these 5k workers are not the ones that should have been fired. One soldier goes rogue, it's the soldier's fault. A whole platoon goes rogue, it's the general's fault..."

 

100% correct with this line of thought.  Trust me, they might not be doing actual fraud today but they are still doing things that the average person would be shocked about.  They are well over the line of borderline ethical behavior.    There whole Great- go for eight cross sell products is a complete sham and that is why they have stopped promoting that in the annual reports.  The fine is a joke; this is why stuff like this keeps happening.  You put some executives in jail and the system changes over night.  As for the stock price of Wells Fargo, I doubt it will have much impact because the system is pretty much exactly the same.

 

This article sums up the situation perfectly; this exact stuff was going on a decade ago.

 

http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/

 

"Employees and the California lawsuit both allege that higher-ups at Wells Fargo also share in the blame for the fraud."

 

"Wells Fargo has "known about and encouraged these practices for years," the California lawsuit said. "Wells Fargo has engineered a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profits."

 

"The culprit in this case in not just the individuals involved, but the corporate culture itself," said Julie Ragatz, director of the Center for Ethics in Financial Services at the American College of Financial Services. "

 

[Spekulatius]

I have been a WFC fan but this bothers me, and I think there are other similar shoes to drop. Specifically, the in-branch "financial advisors" who churn customers in and out of mutual funds and other commission products. I know a guy who did this...it's quite sleazy. They would sift through customer accounts and call on people with "extra cash" or CD's expiring. I'm sure it's also true at Chase, B of A, etc.

 

These in-branch guys have huge pressures to produce, also.

 

At some point there will be regulatory blow-back about this.

 

I am a WFC customer (Wellstrade and checking account) and it is clear that there is a lot of pressure to sell more products. I got bombarded by emails and snail mails and every time, I went in a branch (which now very rarely happens, maybe once a year), they try to sell me insurance or a savings account.

 

With that much pressure, it is not surprising that employees start to crack and game the system, some for their benefit, but many just keep the job. I suspect with branch traffic going down due to mobile and online transaction, that the sales pressure must be even higher - what else is the branch really good for?

 

Just from my own employment experience, there is a very fine line between incentivizing people and applying pushing productivity and basically forcing people to cheat. If you get a make your number or else management, you will have a certain percentage of people cracking and starting to cheat for sure. from my experience, most do it more for fear, than for benefit.

 

It seems like WFC has overstepped that boundary.

[CorpRaider]

Phantom sales as a result of poorly designed incentive, compensation systems and lack of oversight/ethics?  Reminds me of someone...

[Palantir]

I thought this was the Warren-approved folksy bank? Say it ain't so!

[Uccmal]

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

 

why do they have a duty to report this publically? i dont see why or how that is the case.

 

I suggest you check out the various definitions of "duty" on line. I particularly like the definition offered by BusinessDictionary.com regarding scope of employment:

 

"Responsibility of conduct, function, or performance that arises from an express or implied contract, or from the fact of holding an office or position"

 

IMHO its bad optics for Buffett if we dont see some action here, specifically the firing of the top three executives. 

 

The US really should have put some bankers in jail - not saying the WFC guys but certainly the Washington Mutual guy, and Angelo Mozilla.  It would get the attention of everyone. 

 

What blows my mind is that these aggressive tactics alienate customers, employees (whose families and friends use banks), and result in fines and the inevitable lawsuits.  It would be an interesting exercise to work out how much money this sort of clusterf*** actually makes, versus taking a more honest, low key route to business development.  Same with Libor.  It wont surprise me to see billions in class action lawsuits stemming out of this from former employees, and customers.  Whether they are ultimately successful or not, the result will be costly and severely damaging to WFCs reputation and trust.  Trust would seem to be an important quality for a bank.  WFC - soon to be the new BAC - the whipping boy for Government. 

 

So, do people still think that 20 million a year CEOs are worth the money? 

 

Phantom sales as a result of poorly designed incentive, compensation systems and lack of oversight/ethics?  Reminds me of someone...

 

Steve Cohen?

 

 

[shalab]

FWIW - I have accounts in WFC. The service has been good and I never experienced anything mentioned in this thread. They do try to sell multiple products to you and I don't see anything wrong with it.

[Green King]

Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

 

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

 

https://en.wikipedia.org/wiki/Wells_Fargo

 

"Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees over the last few years related to the shady behavior. Employees went so far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said."

 

Number of employees

265,200 (2015)

5300/265200= 2%

 

[Junto]

You cannot use size to justify this problem. 2% or 1%.... any action whereby the bank has allowed 2 million accounts to be opened that were not authorized by the customer is completely unethical, demonstrating poor control and audit procedures, and more depth to the problem than WFC is willing to admit. It is an embarrassment to WFC and a huge embarrassment to the banking industry which only projects more negative feelings when the industry has been yearning for less.

 

As a community banker, I find it deplorable.

[warrior]

All big banks have  aggressive targets for retail branches. banking industry has been changing dramatically  for the last few years  . Foot traffic at the  retail branch level is declining in same areas  double digit y/y, due to new technologies.  Targets are varies among the big banks  . in some cases  with daily /weekly conference calls regarding what is on the “work” or closed.  The main component of targets are :

1) volume or size of the closing business, that includes all credit products such as - mortgages, line of credits  loans etc…  Investments- mutual funds, term deposits, stocks portfolios  etc…

2)  Units or productivity per FTE ,how many product and services were sold  , that includes ,all  accounts, credit cards, singing up in to on line banking ,contributions into register plans, financial planning  etc…

3) revenue or profitability for every product sold , for example if adviser opens up fee based account instead of no fee bank account it will translate into  higher revenue for the branch . adviser  does not price to much for term deposit or mortgages, sells high cost funds not ETFS… all  gives more revenue , where  branch is measured for . I saw when people at the branch would open 5 fees based accounts and  5 credit cards for one customer, and then to closed after 2 weeks just to get the revenue target.  Unfortunately,  with big targets to hit, there some    pressure for employees to cross the line and start to behave unethically.

4) Customer’s experience- survey is conducted every week for the branch to see what was client’s experience at the branch.  In general, branch need to achieve certain level of rating  or satisfaction  to hit the target.

It is not only WFC, I would not be surprised to see others on this list. Once a year, before bank’s fiscal year end new targets comes from the top, from executive committee. To please shareholders and increase R/R on the business, usually target for retail banking increases y/y.

Small banks,  Community banks, credit union  completely different ball game

 

 

 

[Peregrine]

This is clearly another case of misguided incentives. For a company as large as Wells, these kind of things will happen. Let's see how management responds to this.