On the surface, the Federal Reserve seemed really to lay the hammer on Wells Fargo & Co. for its accounts scandal and serial wrongdoing. In a sentence handed down Feb. 2, the Fed placed a cap on the bank's future asset growth; the bank announced the departure of four unidentified directors, presumably at the regulator's urging.
Investors certainly thought the punishment was harsh. Wells Fargo stock was battered to a 9.2 percent loss in Monday's trading on the New York Stock Exchange. As my colleagues Jim Puzzanghera and James Rufus Koren reported, that was twice the loss suffered by the broad market on a bad day. Wells Fargo was down an additional 3.5 percent as of midday Tuesday, while the broad market was eking out a gain.
Yet former Treasury Secretary Lawrence Summers is correct to assert that the board members are "getting off too easy," as the headline on his Washington Post op-ed had it on Tuesday. Summers noted that the four directors being ushered off the board have not yet been identified. They may not be named until the bank issues the proxy statement for its 2018 annual meeting, probably in mid-March.
The bank calls this process "refreshment" of the board, which may be the least refreshing use of the term "refreshment" in business history.
"My question," Summers wrote: "Why aren't the directors who are leaving being named and asked to resign effective immediately with an element of humiliation?"
That's a good question, but it doesn't go far enough. We'd ask why only four directors are being dropped? And why is CEO Timothy Sloan, whose tenure with Wells Fargo goes back 30 years and included management responsibilities during the scandal, keeping his job? A new broom can sweep clean only if it's genuinely new, but the board and top management at Wells Fargo will keep some very old bristles around.
Let's quickly recap this bank's history of scandal. In a practice first reported by the Los Angeles Times in 2013, bank employees opened bogus accounts for customers for years, evidently to meet brutal productivity goals imposed from above. In September 2016, the bank agreed to pay $185 million to regulators for that offense. Since then, the bank has acknowledged a host of other wrongs, including charging auto-loan customers for car insurance they did not need and charging improper fees to some mortgage borrowers.
Fed officials understood, in principle, where the blame rested. As part of the punishment, Michael Gibson, the Fed's director of supervision and regulation, issued letters of chastisement to former Chairman and Chief Executive John Stumpf, former director and interim Chairman Stephen Sanger and the board as a whole.
Gibson told Stumpf that he provided "ineffective oversight" of practices he knew had "motivated compliance violations and improper practices." Sanger was flayed for the "many pervasive and serious compliance and conduct failures ongoing during your tenure as lead independent director." The board was told that its dereliction "contributed in material ways to the substantial harm suffered by WFC's customers."
These are strong rebukes. Yet the bank still seems reluctant to undertake a full scale housecleaning. Five directors, including Sanger, retired in 2017, and six new independent directors have been elected.