More than two years after a scandal erupted over fake customer accounts, Wells Fargo & Co. remains at sharp odds with its government overseers. How sharp should come into focus Tuesday, when Chief Executive Timothy Sloan appears before a House Financial Services Committee newly dominated by Democrats with a decidedly populist tilt.
Mr. Sloan agreed to testify solo, ahead of other bank CEOs, when asked by the committee. Among other topics, he is likely to be asked about Wells Fargo’s ongoing problems and whether he is capable of fixing them.
“As a result, Wells Fargo is a better bank than it was three years ago, and we are working every day to become even better,” he says in the prepared remarks.
Mr. Sloan first promised to repair the defects at Wells Fargo when he took the helm in October 2016 in the wake of a damaging revelation that retail-branch employees were creating fake customer accounts to juice their numbers or keep their jobs.
A 31-year veteran of the bank, he initially set out to repair its image by sending executives on listening tours and wooing large shareholders. He reshuffled the leadership team and pushed Chief Risk Officer Michael Loughlin to fix the risk-management system—and when the Fed rejected the plan, hired a consulting firm to devise a new one. Mr. Loughlin retired last year.
In recent months, the bank has added five outside executives to its top ranks, some at the behest of regulators. Wells Fargo “has undergone an extensive review process and has been working diligently to address and resolve the problems of the past, take care of our customers promptly and fairly, and transparently describe our progress,” a spokeswoman said.
But investors, analysts and employees have been leery. The bank’s stock is flat since the sales scandal erupted in 2016, while the KBW Nasdaq Bank Index of the biggest U.S. banks has risen 35%.
“Is a new leadership person required at the helm? And if so, should it be an outsider? Those are fair questions for the board to ask right now; 2½ years is a pretty good runway for someone to make changes,” said David Miller, a Princeton University professor who focuses on business ethics and has advised Citigroup Inc. among other big banks.
A big reason is Wells Fargo’s inability to turn the page with the government. Just over a year ago, the Federal Reserve imposed a cap on how much the bank can grow its assets. Mr. Sloan recently cautioned that the limit would likely remain in place at least the rest of this year—far longer than originally expected.
One of the bank’s biggest shareholders sold off its stake in response to the Fed’s move.
Parnassus Investments said the bank was no longer suitable for its portfolio. Discussions with Mr. Sloan and Wells Fargo directors led to some positive changes, but “troubling new issues continue to emerge,” Parnassus said in a statement at the time.
Since the Fed imposed its cap in February 2018, Wells Fargo has continued to accumulate problems. A few weeks after the Fed’s order, Wells Fargo disclosed that the Justice Department had ordered it to obtain an independent review of its wealth- and investment-management business. Whistleblowers had alleged financial advisers were pushing clients into inappropriate products and were shifting client assets around to generate greater revenue and bonuses, The Wall Street Journal has reported.
In April, the Consumer Financial Protection Bureau and OCC imposed a $1 billion fine on the bank for misconduct in its auto- and mortgage-lending business. The OCC said it found deficiencies in the bank’s risk-management system that “constituted reckless, unsafe or unsound practices,” leading to improper charges to hundreds of thousands of consumers.
Wells Fargo also had botched refunds to thousands of auto-loan customers and sent 38,000 erroneous communications to borrowers who were forced to buy unneeded auto insurance, the Journal reported. It also waited months before reaching out to mortgage customers who had been improperly charged, people familiar with the refunds said. That delay was, in part, at Mr. Sloan’s direction, the people said. He worried the bank’s initial methodology could open it up to a deluge of customer claims in the future, one of the people said.
The bank is still refunding auto-loan customers, the person said.
Arati Randolph, the bank’s spokeswoman, said Wells Fargo has now paid refunds and interest to “substantially all” affected mortgage customers. Mr. Sloan “always wants to ensure that any customer process is conducted thoughtfully and accurately,” she said.
Mr. Sloan declined to be interviewed for this story.
In midsummer, the OCC, frustrated at Wells Fargo’s slow integration of more than 400 lending platforms within its wholesale business, pushed the bank to hire PricewaterhouseCoopers to do the work, current and former executives said.
Soon after, the OCC effectively forced out two top executives, Chief Administrative Officer Hope Hardison, a 25-year Wells Fargo veteran who ran human resources, and David Julian, the chief auditor.
The OCC sent individual rebukes to Ms. Hardison and Mr. Julian, a procedure that left the bank little choice but to replace them.
The regulator has more direct authority, under a 2018 enforcement action, to replace Wells Fargo executives or directors, which it is now considering using, a person familiar with the matter said. The regulator hasn’t decided what to do and may not exercise its authority, the person said.
Wells Fargo executives “continue to have constructive dialogue with our regulators and are taking their detailed feedback and making comprehensive changes across the company, especially to our operational and compliance risk management,” Ms. Randolph said. Mr. Sloan has the full support of the bank’s board, she said.