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2016-10-14 12:22:12
Wells Fargo Shake-Up Fails to Dispel Skepticism From Lawmakers

If Wells Fargo’s board had hoped John G. Stumpf’s resignation on Wednesday and the appointment of Timothy J. Sloan as the new top executive would instantly quell the bank’s numerous critics, they were mistaken.

Within hours of the announcement, a member of Congress and other critics were already dismissing Mr. Sloan as the wrong man to make the big changes the bank needs to move past its current predicament over the creation of as many as two million phony accounts.

While the Wells Fargo board emphasized that Mr. Sloan was “ready to lead the company into the future,” the bank’s critics focused on the role that Mr. Sloan — who has spent the last 29 years at Wells Fargo — played in the bank’s troubling past.

“I remain concerned that incoming C.E.O. Tim Sloan is also culpable in the recent scandal, serving in a central role in the chain of command that ought to have stopped this misconduct from happening,” Representative Maxine Waters, a California Democrat, said in a statement.

For his part, Mr. Sloan did not signal in his first hours as chief executive that he intended to make any bold shifts. He praised the tenure of Mr. Stumpf and said he planned to pursue largely the same strategy in restoring the bank’s reputation that his predecessor had begun.

Mr. Sloan’s most recent role was as Wells Fargo’s president and chief operating officer, positions he took in November 2015. During his 11 months in those jobs, he oversaw several major business lines, including the community banking unit, where employees were still being fired for creating fake accounts earlier this year.

Even as regulators were digging into the problems this summer, Mr. Sloan, 56, remained a staunch defender of cross-selling, telling an interviewer in June that the “fundamental strategy we have is not going to change.”

It was Mr. Sloan who informed Wells Fargo’s former head of community banking, Carrie Tolstedt, this past summer that the bank was “moving in a different direction” from the way her unit had been run, Mr. Stumpf said. Ms. Tolstedt was allowed to retire and collect millions in additional compensation, rather than be fired. (The bank’s board has since clawed back $19 million of her pay.)

For all the early doubts about Mr. Sloan, banking analysts say, cleaning up the mess at Wells Fargo would be an uphill job for anyone to undertake.

Wells Fargo had been celebrated for years as the nation’s best-run bank, but it took less than 40 days for that sterling reputation to evaporate. Since regulators announced a $185 million settlement with the bank in early September, Wells Fargo has been consumed by the scandal.

Prosecutors in three states have begun investigations, and state treasurers in Illinois and California have pulled business with Wells. Hillary Clinton denounced the bank on the campaign trail.

Overcoming this rancor now falls to Mr. Sloan, an Ohio native and father of three grown children, who is known for his dry wit and direct manner.

He made no pronouncements on an overhaul of the Wells Fargo culture. In a brief interview on Wednesday, Mr. Sloan said, “We are going to enact the changes that have already been announced,” including ending the sales goals in the retail bank that former employees and others — including lawmakers and regulators — blamed for the problems.

Mr. Sloan added that it was important that he not interfere with the board and its internal investigation into the fake accounts and the bank’s handling of them.

Some former employees in Wells Fargo’s bank branches said in interviews that nothing would improve until the bank renounced the corporate culture where Mr. Sloan was groomed.

That culture, they said, emphasizes selling as many new accounts as possible, often at the expense of providing good service to customers.

“I don’t see that happening unless they get rid of all the top corporate executives,” said Julie Miller, who worked at Wells Fargo for eight years in Allentown, Pa., until being fired in 2013 for not meeting her sales goals. “They all created the bank’s culture of leading by fear and intimidation.”

But some of the changes that Wells has made in the last month appear to be taking hold. One Wells Fargo teller in Texas, who spoke on the condition of anonymity because she feared losing her job, said that she felt freed from previous pressure to meet sales goals and could for the first time focus entirely on making sure her customers were satisfied.

On Thursday, Wall Street analysts were also more willing to give Mr. Sloan the benefit of the doubt, saying that he had largely avoided any direct role in the scandal, except for his brief time overseeing Ms. Tolstedt last year. By then, they said, the bank was dealing with the problem and cooperating with regulators.

As the bank’s former chief financial officer, Mr. Sloan interacted frequently with investment analysts, who until recently regarded Wells Fargo as the best-run big bank in the country.

A graduate of the University of Michigan, Mr. Sloan is known for his sense of humor and for having a pricklier personality at times than the usually pleasant and polished Mr. Stumpf.

“Tim Sloan can have some sharper edges,” said Mike Mayo, a banking analyst at CLSA. “Wells Fargo might need that right now.”

Mr. Sloan lives with his wife in the Los Angeles area and spends the workweek at the bank’s corporate offices in San Francisco.

One area Mr. Sloan might target as he figures out the bank’s strategy going forward: Wells Fargo’s outsized network of bank branches.

Even as other large banks have been paring back branches as more customers transact online, Wells still runs roughly 6,000 branches — which is about 30 percent larger than Bank of America’s network.

While Wells also offers digital banking services, the bank has used its bank branches to successfully cross-sell products to customers as they come in the door. With the shift away from cross-selling, the bank may not need so many branches.

Mr. Stumpf, who got his start in retail banking, was seen as more wedded to the branch network. Mr. Sloan’s expertise in wholesale banking and corporate finance, analysts said, may make him more willing to trim the bricks and mortar.

The bank is now working on a new compensation structure for its employees. Wells workers have said that they felt pressured to open the phony accounts because their bonuses — and in some cases their jobs — depended on meeting sales numbers.

From now on, a great share of employees’ compensation will hinge on whether they have improved the customer’s experience, not on how many accounts they created.

“Changing these fundamentals doesn’t take a whole lot of time,” said Mike Moebs, a former executive at Wells Fargo, who now runs an economic and financial research firm.