ASIC needs to Recognise what are the similarities between Wells Fargo and Bad
Australian Banks and expose their crimes rather than keeping mum about it
A Brief History of Wells' Fargo Wicked Sales Culture
http://www.americanbanker.com/gallery/a-brief-history-of-wells-fargos-sales-culture-1092280-1.html
When Wells Fargo decided to stop calling its branches "stores," it marked the symbolic end of an era. Wells long prided itself on its sales culture, which was championed by Richard Kovacevich, starting at Citibank, then as chief executive of Minneapolis-based Norwest Corp., and finally at Wells. Kovacevich's strategy, which continued under recently departed CEO John Stumpf, hinged on selling more products to the bank's existing customers. Branches were stores, since stores are where consumers buy products.
y of Wells Fargo's Sales CultureThe firm's sales culture has drawn sharp criticism in the wake of the revelation that the firm's employees opened as many as 2 million fraudulent customer accounts between 2011 and 2015. In response to the scandal, Wells announced that it was eliminating sales goals altogether. Here is a look back at some key milestones in the development and unraveling of the firm's once-vaunted sales culture.
It All Started at Citi
Kovacevich joined Citibank from General Mills in 1975. He got credit for turning around Citi's New York branch system by persuading existing checking account holders to give a greater share of their banking business to Citi. Employees were expected to work hard to bring in business. And Citi started waiving fees for certain customers who bought more of the bank's products. "I never heard of a retailer who didn't want customers coming to the store," Kovacevich told the New York Times many years later. "Yet you often hear bankers complain about people who waste their time, ask too many questions and get the carpet dirty." Kovacevich was eventually passed over for the job of head of retail banking at Citi. In 1986 he left the New York bank to become chief operating officer at Norwest.
Koacevich Joins Norwest, Develops the Blueprint
Kovacevich got a chance to implement his vision more fully when he moved into the top job at Norwest, which grew rapidly under his leadership during the 1990s. A big part of the firm's success involved its mortgage business, whose customers frequently took out home equity loans or got credit cards from the bank. "The war we are in will be won on the field of revenue," Kovacevich told American Banker in 1995. "And the most effective way to gain revenue and profits is to cross-sell to customers." At Norwest, Kovacevich's deputies included Stumpf, who spent time during the early 1990s consolidating banks in Texas, and Carrie Tolstedt. Tolstedt eventually became the head of community banking at Wells Fargo, retiring shortly before the recent scandal erupted.
Norwest Merges with Wells Fargo
Under a deal announced in June 1998, Norwest and San Francisco-based Wells Fargo agreed to combine in a merger of equals. The merger created the nation's seventh-largest bank, with branches in 21 states and more than 90,000 employees. The new company kept the Wells Fargo name, and the two predecessor firms had equal representation on the board of directors. But Kovacevich became CEO. And he was determined to bring Norwest's sales culture to the West Coast. At the time of the merger, Norwest was selling 3.8 products per household, but the merger dragged that number down to 3.3. Three years later, the cross-sell ratio was 3.7, which was still far below what Kovacevich thought it should be. Wells established a goal of selling at least eight products to every customer. "The cost of selling an additional product to an existing customer is only about 10% of the cost of selling that same product to a new customer," Kovacevich said in 2001."That's why cross-selling delivers extraordinary profits."
Stumpf Takes the Reins
Kovacevich retired in 2007 and was succeeded, in a well-choreographed transition, by Stumpf. By that time, Wells Fargo's retail banking cross-sell ratio had risen to 5.5 products per household. Prior to his appointment as CEO, Stumpf promised no "sea change" in strategy. "We have the right vision and focus," Stumpf said. "The debate over how we get there – how we create more customer loyalty, how we're more elegant and simple in our product offerings and design – is ongoing."
Wells Buys Wachovia
Wells had less exposure to bubble-era subprime mortgages than some of its competitors, and found itself in a relatively strong position during the crisis in the fall of 2008. Charlotte-based Wachovia was looking for a buyer, and after spurning an offer from Citigroup, agreed to sell to Wells Fargo. The deal gave Wells a nationwide footprint for the first time, but it also posed a new challenge to the company's sales culture. Among the changes: Wachovia's branches were remodeled to accommodate larger sales staffs.
Cross-Selling Strategy Sputters
Wells Fargo long touted its cross-selling ratio to investors, but the metric has not risen much since 2012. In November 2012, Wells reported that it was selling 6.05 retail banking products per household. Three years later, the number was 6.11 products per household. That stagnation overlapped with scrutiny of the bank's sales practices. The Los Angeles Times first reported on phony accounts at Wells in 2013. An investigation by local and federal agencies followed. Between 2011 and 2015, Wells fired some 5,300 employees in connection with the fraudulent accounts.
Stumpf Toppled Amid Scandal, Sloan Takes Over
Stumpf resigned on Oct. 12 in the wake of two widely panned appearances before congressional panels. He was succeeded by Tim Sloan, a deputy who was being groomed as the heir apparent well before the scandal broke. Sloan is not forsaking cross-selling. But he has recently suggested that the company's fabled sales culture was taken too far. "There are things that need to be fixed within our culture. There are weaknesses within it that we must change," Sloan told a gathering of Wells employees late last month. "We had product sales goals that sometimes resulted in behaviours and practices that did not serve our customers' or our team members' interests. And we were slow to see the harm they caused."
Culture, Incentives at Wells Fargo in Question After $190M Settlement
By Kate Berry
September 8, 2016
Wells Fargo's reputation as a consumer-friendly bank suffered a significant blow Thursday after it agreed to pay $190 million to settle charges that thousands of employees created unauthorized bank and credit card accounts for customers in order to collect bonuses for themselves.
Regulators called the actions of Wells Fargo's employees "outrageous" while analysts referred to as many as 2 million bank and credit card accounts that may not have been authorized as "a black eye" for a company that otherwise has an excellent reputation.
The settlement underscored how incentives and sales goals led employees to illegally open new accounts, transfer customer money to the accounts, and create PIN numbers and emails without customers' authorization, regulators said.
The conduct was not contained to any particular state or region. Thousands of employees engaged in unlawful sales practices, leading Wells to terminate 5,300 employees, equivalent to more than 2% of its workforce, who allegedly engaged in this conduct from 2011 to 2014.
"It is outrageous for a bank to use a customer's private information without their permission to open unwanted accounts," Los Angeles City Attorney Mike Feuer said in a conference call with reporters. "It is outrageous for a bank to transfer funds without consent. Consumers must be able to trust their banks. … This was a widespread, nationwide practice."
Wells said in a statement that it has taken disciplinary actions, including firing managers and team members "who acted counter to our values."
"At Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action," the bank said in a statement.
Yet the bank spent a significant amount of time initially pushing back against the accusations, which first surfaced in a Los Angeles Times article in 2013. Reporter E. Scott Reckard, who has since left the paper, wrote about employees who were terminated because of forced signatures, falsified phone numbers and customer accounts that were opened to meet sales quotas.
"I disagree with the L.A. Times story," Wells Chief Financial Officer Timothy Sloan said in a January 2014 interview with American Banker.
In the original L.A. Times article, Sloan said he was "not aware of any overbearing sales culture."
By Thursday, the bank was no longer denying the claims. Instead, it agreed to pay $100 million to the Consumer Financial Protection Bureau – that agency's largest fine to date – $50 million to the city and county of Los Angeles and $35 million to the Office of the Comptroller of the Currency.
The bank also agreed to pay $5 million in remediation to customers. It already has refunded $2.6 million for fees on products that customers did not request. The average refund was $25.
Wells has long touted its ability to cross-sell products, but some analysts questioned the bank's credibility after the settlement.
"It's a black eye for the company," said Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods. "They're doing things that if not illegal, are immoral, signing up people for services they didn't need and charging them fees they shouldn't have incurred. These are fairly egregious acts that seemed to go largely undetected."
Thomas Curry, the comptroller of the currency, called the actions "reckless, unsafe and unsound sales practices."
The "enforcement actions against Wells Fargo likely could have been prevented if the bank had a stronger compliance risk management program that fostered a more healthy culture, in which incentives aligned behaviours properly," Curry said in a statement.