After its widespread unauthorized account fraud first came to light, Well Fargo (NYSE: WFC) agreed to a number of conditions regarding its ongoing operations.
First, the bank agreed to pay a total of $185 million in fines to several regulators, pay full restitution to all of its victims, and hire an independent consultant to review its procedures. But it also reached an agreement with the Office of the Comptroller of the Currency (OCC) that would exempt the bank from certain restrictions normally placed on troubled financial institutions. Now, the OCC has revoked some provisions of that agreement, forcing Well Fargo to get the regulator’s permission should it seek to hire or fire top executives.
What happened?
From now on, Well Fargo must provide the OCC written notification and receive approval should it want to change any members of its board of directors or any senior executive officers. It is also prohibited from making “golden parachute payments,” which are generally defined as large compensation packages for executives leaving a company, according to the OCC’s notice revoking parts of the earlier deal.
“This is the OCC saying, ‘We don’t trust you to run your business,'” Wade Francis, who now serves as president of Long Beach bank consultancy Unicon Financial Services, told the Los Angeles Times. “They’re questioning the judgment of management.”
It’s a slap in the face to the bank’s management, which has already named a new CEO after longtime boss John Stumpf resigned amid the fallout from the scandal. New CEO Timothy Sloan has worked at the bank for 30 years. It’s possible, though it was not stated, that the OCC did not like Sloan’s appointment, nor the payout Stumpf got on his way out the door.
What happens next?
The bank faces the same task it did before the heavier oversight was restored: It needs to win back the public’s trust while also convincing regulators it has stamped out the internal conditions that were so tolerant of the pervasive fraud. Those are not easy problems to solve, considering that the fake account scandal impacted so much of the company’s culture.
Sloan may not have been part of that. It’s hard to think he would have been tapped for the CEO job if there was any chance he was even adjacent to the issue, but he still faces a long road in winning back trust. These new rules should not impact day-to-day operations, but they are a clear vote of no-confidence in the board by one of its regulators. The new CEO may be able to convince it to change that position, but it’s not going to be easy or quick.
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Daniel Kline has no position in any stocks mentioned.
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