BUSINESS
09/29/2016 04:53 pm ET

Wells Fargo CEO Should Resign Over 'Egregious Fraud' With Fake Accounts, Lawmakers Say

Lawmakers called for the CEO to resign, and for the bank to be broken up.

WASHINGTON/NEW YORK - U.S. lawmakers called for Wells Fargo & Co chief John Stumpf to resign on Thursday and a top House Democrat demanded the bank be broken because it is too big to manage.

Stumpf’s second trip to Capitol Hill on Thursday went no better than his first as lawmakers from both parties angrily rebuked his handling of sales abuses and said the bank has damaged customer trust as well as the broader banking system.

Representative Maxine Waters, the committee’s ranking Democrat, said fraudulently opening accounts amounted to identity theft and called for Wells Fargo to be broken up because it is too big to manage.

She called the sales abuses “some of the most egregious fraud we have seen since the foreclosure crisis.”

“I’m moving forward to break up Wells Fargo bank,” Waters said.

Although Stumpf offered fixes for the widespread abuses, members of the House Financial Services Committee blasted him over the bank’s culture, his compensation, and whether those responsible got the appropriate punishment for overseeing the opening fee-generating phantom accounts. Several called for his resignation.

Representative Mick Mulvaney, a South Carolina Republican, said, “The damage you have done to the market and your industry far exceeds the damage you have done to your business.”

Wells Fargo shares fell 2.4 percent to $44.22. Since Sept. 7, the last trading day before the scandal broke, its stock has lost 11 percent, or about $27 billion in market value, based on Reuters data. The stock is trading at its lowest since early 2014.

Stumpf said he has had one conversation with Warren Buffett, whose company Berkshire Hathaway is Wells Fargo’s largest shareholder, since the penalties were announced Sept 8. Buffett’s secretary told Reuters he was not immediately available for comment.

Jeb Hensarling, the Republican chairman of the committee, said in his opening statement that he has lost faith in Wells Fargo, where he has a mortgage.

“Mr. Stumpf, I have a mortgage with your bank,” Hensarling said. “I wish I didn’t. I wish I was in the position to pay it off because you have broken my trust as you have broken the trust of millions.”

Stumpf said he was sorry the bank broke the trust of its customers and admitted under questioning that employees stole money through unwarranted fees.

“I am deeply sorry that we didn’t do the right thing,” Stumpf said in response to a lawmaker who said the scandal has eroded the bank’s market value.

Asked by Representative Sean Duffy, a Republican from Wisconsin, about whether Wells Fargo employees ‘stole,’ Stumpf said, “In some cases, they did.”

The sales practices have exploded into a scandal in Washington, on Main Street as well on Wall Street. The hearing, the second on Capitol Hill this month, raised the possibility lawmakers may look at banks’ sales practices beyond Wells Fargo.

Republicans on the committee have often advocated easing Wall Street regulations but at Thursday’s hearing they were among Stumpf’s strongest critics. Duffy said small fees wrongly levied on Wells Fargo accounts amounted to customer theft, an accusation Stumpf accepted.

Representative Steve Pearce, a Republican from New Mexico, faulted Stumpf for saying the company’s board could eventually be relied upon to sanction the executives responsible.

“I, sir, think you ought to submit a resignation and your board cannot hold off action on that,” he said.

Representative Brad Sherman, a Democrat from California, asked the committee to summon other Wall Street chiefs, including from Citigroup Inc and Bank of America Corp, to determine if they have imposed sales demands and quotas on their employees.

“I don’t think, Mr. Stumpf, that you should be alone in this joyous experience,” said the California Democrat.

Stumpf told lawmakers that Wells Fargo will eliminate sales quotas for branch staff starting Oct. 1, three months earlier than planned.

He said the bank was strengthening oversight of sales tactics and changing procedures for issuing credit cards. It also paid back past and current customers for any fees incurrent on the ghost accounts.

Earlier this week, the bank took back $41 million in stock awarded to Stumpf, an unprecedented rebuke to a major U.S. bank CEO, but the move is unlikely to silence calls for his resignation. Investigators found that branch staff opened as many as 2 million unauthorized credit card and deposit accounts to meet sales quotas.

When pushed about whether the bank would waive its mandatory arbitration rules so customers could sue the bank, he said “no.”

Representative Carolyn Maloney raised questions about $13 million in stock sales by the CEO in 2013 after he learned about the abuses. Stumpf said he sold stock with proper approvals and added that the sales were made “with no view about what was going on.”

The affair has triggered lawsuits, more investigations and wiped more than $20 billion from the bank’s market value.

On Wednesday, California, Wells Fargo’s home state, suspended business relationships with the bank for a year and said it would work with the state’s two giant public pension funds to change the management structure at the bank, including separating the roles of CEO and chairman.

The episode has been a stunning reversal for Stumpf, long regarded as a safe pair of hands in the industry for navigating Wells Fargo successfully through the financial crisis.

Thursday’s testimony follows a bipartisan tongue-lashing from the Senate Banking Committee on Sept. 20, when Senator Elizabeth Warren of Massachusetts called Stumpf a “gutless leader” who should be criminally investigated.

Criticizing Wells Fargo’s practice of calling its branches stores, Representative Ed Perlmutter, a Democrat from Colorado, said, “You don’t sell Veg-O-Matics. You don’t sell grapefruit. Why are you calling these things stores? You’re a bank.”

(Additional reporting by Ross Kerber in Boston and Lisa Lambert in Washington; Writing Nick Zieminski in New York; Editing by Carmel Crimmins, Jeffrey Benkoe and Alan Crosby)

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