The Tim Sloan era has begun at Wells Fargo but the old problems remain.
The newly installed chief executive faces a plethora of challenges following a sales practices scandal that felled his predecessor John Stumpf.
He needs to restore the bank's reputation after revelations that staff opened as many as two million accounts without customers' knowledge to meet internal sales goals and he has to navigate a litany of federal and state investigations arising from those revelations.
Wall Street will be his first port of call when he presents third-quarter results on Friday.
Investors are seeking reassurance that a suddenly chastened Wells Fargo can rebuild its reputation and retain profits while overhauling the hard-charging sales culture at the heart of the scandal over unauthorized accounts.
Sloan's nearly 30 years with Wells, largely spent on the corporate and institutional side of the bank, and his moderate temperament make him an experienced pair of hands.
But as chief operating officer of the bank since November 2015, he had oversight over Wells' retail division where the unauthorized accounts were created, some of them during his tenure as COO.
Such proximity will make it difficult to silence critics in Washington who are also investigating the scandal and have said it proves that some large banks should be broken up.
"I remain concerned that incoming CEO 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," said Maxine Waters, the top Democrat of the House Financial Services Committee, in a statement.
Wells' shares gave back the gains accrued on Wednesday in after-hours trading when Stumpf's departure was announced and were last down nearly two percent to $44.47. The stock is nearly 11 percent below the level it was trading at before the scandal broke.
Calculating the tab
Wall Street is trying to get a handle on what a long list of probes and lawsuits regarding the bank's opening of unauthorized customer accounts will ultimately cost.
So far the tab has been relatively small: Wells agreed to a $190 million settlement last month, representing less than 1 percent of its annual earnings. But that deal itself led to a range of other inquiries the San Francisco-based bank is now contending with.
Wells Fargo is expected to say how much money it has set aside for legal costs it can reasonably predict when management discusses results on Friday. At least nine separate regulators, prosecutors, enforcement agencies and congressional committees appear to be looking into the bank's actions, according to a Sept. 26 Bernstein Research report. That comes in addition to private lawsuits from shareholders, customers and former workers.
Wells' settlement on Sept. 8 with the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and a Los Angeles prosecutor revealed that the bank fired 5,300 employees for improper practices and is now working to retool risk-management protocol as well as pay incentives and training for workers.
Former employees have described a pressure-cooker sales culture inside the bank where managers had browbeat staff into hitting aggressive daily sales quotas, which in turn led some workers to create unauthorized accounts.
As government authorities examine Wells Fargo, it is likely they will find abuses in other parts of the bank beyond retail customers, said Harvey Pitt, founder of consulting firm Kalorama Partners and a former chairman of the U.S. Securities and Exchange Commission.
"The damage to customers could be much more significant," said Pitt.
Earlier this month, Reuters reported a probe by U.S. Senator David Vitter has found 10,000 small business customers were also victims of improper practices.
A Wells Fargo spokesman did not respond to requests for comment.
It is difficult to estimate the total cost of the probes and litigation Wells will face over the unauthorized accounts, analysts said. Some matters could drag on for years before being resolved, and there are a range of possible outcomes.
Even so, most analysts have cut profit forecasts for Wells Fargo, citing fallout from the scandal. The average estimate for Wells Fargo's 2017 net income is now $20.8 billion, down $300 million since Sept. 7, according to Thomson Reuters data.
Ron Johnson: $0
Ron Johnson came into JC Penney from Apple in 2011 like a bull in a china shop. He installed his own team, replacing executives and employees, and declared a new vision for "JCP," according to a 2014 Fortune report. But that vision fell far short of expectations—the stock declined by 50% during his tenure.
Ultimately, Johnson was pushed out by the company's board after just 17 months, and left without severance. He did, however, receive $658,921 in salary and other compensation for the portion of the year he worked before leaving.
Renaud Laplanche: $0
Earlier this year, LendingClub founder and CEO Renaud Laplanche resigned after failing to disclose his personal investment in one of his company's customers, and then suggesting that LendingClub itself invest in that company.
According to a Fortune report: "Laplanche will not receive any of the $870,000 in severance he normally would have been entitled to receive (assuming no change in control). He also will not receive any of his unvested shares of LendingClub stock."
Laplanche's salary was $461,500, but in 2015 he received an additional $549,185 in bonuses, which he requested in the form of stock.
Laplanche had been with the company from its inception in 2006 until May 2016.
Dick Costolo: $0
Chief executive of social media platform Twitter from 2010 to 2015, Costolo rose to head honcho after Jack Dorsey himself was fired as CEO, only to be replaced by Dorsey when he stepped down. In between all of that was the less prominent Evan Williams, who Costolo replaced in 2010. (Still with me?)
Under Costolo's leadership, the company's revenue stagnated and its stock price fell 14% from the time of its initial public offering to the time Costolo left. Fanning the flames were Wall Street investors, many of whom called for Costolo's resignation.
Once Costolo resigned, he also forfeited any severance pay he would have received had he been fired or had there been a "change in ownership"—a forfeiture of around $3 million or $25 million, respectively.
Instead, Costolo walked away with nothing—that is, if you consider 8 million stock options and shares worth hundreds of millions "nothing."
Dov Charney: $0
The founder of American Apparel was fired for cause in 2014, following a company investigation of allegations of sexual harassment and other misconduct on the part of the retail executive. Being fired for cause effectively means you've breached your contract and forgo any severance package to which you might be entitled under other circumstances.
Charney, who subsequently tried to buy back the company, filed an arbitration petition seeking up to $35 million in damages, including "nearly $6 million in severance and $1.3 million for unpaid vacation days," according to a letter sent to American Apparel's law firm by Charney's attorney, who also gave a copy to the Los Angeles Times. Charney also unsuccessfully tried to sue his former employer for defamation.
Fast-forward to 2016: The company is reorganized under new management, after filing for Chapter 11 bankruptcy protection in late 2015, and Charney—whose ownership stake was effectively wiped out in the bankruptcy—is reportedly launching a new clothing company.
Carly Fiorina: $21 Million
Millennials may know Carly Fiorina for her failed 2016 presidential bid, but long before that, the businesswoman-turned-political-hopeful was chief executive at Hewlett Packard (1999 to 2005).
Though Fiorina often referenced her business acumen on the stump, her record is hotly contested. She led the merger with Compaq, widely regarded as a failure during Fiorina's tenure, though she helped keep HP afloat amid the larger dot-com bubble.
According to a 2005 report, "executives said Fiorina was not terminated for cause and that she would receive severance pay — and a company spokesman said she'll get a payout of approximately $21 million, including stock options."
Not too shabby for someone at the helm while the company's stock price declined by 60%.
Tom Freston: $80 Million
Freston rose quickly from co-COO and co-president of Viacom in 2004 to CEO in January 2006, only to be fired by Viacom chairman Sumner Redstone nine months later.
Freston was reportedly dismissed for failing to snap up MySpace, according to The Guardian, but he didn't leave without his $80 million severance package, which included a deferred compensation payout and pension plan, consulting fees, and a valuable life insurance policy.
Viacom may have cut ties with Freston, but it's not cutting any costs when it comes to other out-the-door execs. In June, it was reported that two other Viacom execs could qualify for a combined $146 million buyout package.
Stan O'Neal: $161.5 Million
O'Neal served as the CEO of Merrill Lynch from 2002 to 2007, until he was caught up in a little thing called the mortgage crisis and consequently resigned. Merrill misled investors about the bank's exposure to collateralized debt obligations, or CDOs, that helped topple the U.S. mortgage market in 2008, though O'Neal, like so many others involved in the banking collapse, faced no criminal charges.
Once O'Neal officially submitted his resignation to Merrill Lynch (now part of Bank of America) he walked away with a "retirement" compensation package valued at $161.5 million.
Bob Nardelli: $210 Million
Nardelli departed GE after losing a three-man race to succeed then-CEO Jack Welch. Within two weeks he'd landed a job as the CEO Home Depot, despite having no retail experience. Though the home improvement company's profits increased during his tenure, by 2007 Nardelli was no longer "the right guy for the job," according to one investor. Nonetheless, he walked away with $210 million in severance—emblematic, some critics said, of his generous compensation package relative to the stock's performance.
Ed Whitacre: $230 Million
To be fair, Whitacre's "severance" package is really a retirement package—but it's worth including on this list as it was one of the top two largest packages ever awarded to a departing company executive.
As CEO of Southwestern Bell, Whitacre led the company's acquisition of AT&T in 2005 (the merged entity took the ATT name). Two years later, he walked away with a retirement package of $158 million, including "$24,000 in annual automobile benefits, $6,500 each year for 'home security,' access to AT&Ts corporate jet for 10 hours a month and $25,000 to cover his country-club fees," according to CNNMoney.
A GMI report from 2012 estimated that Whitacre's payout was slightly higher than his SEC listed retirement package. Factoring in things like salary, stock, deferred compensation, and benefits, GMI estimated Whitacre's golden parachute at a cool $230 million.
And instead of "retiring," Whitacre went on to lead a post-recession General Motors teetering on the brink of disaster.
Bill McGuire: $800 Million
Somehow, getting busted for "backdating" stock options means walking away with hundreds of millions of dollars, as was the case for former UnitedHealth CEO Bill McGuire.
During his tenure at the company, McGuire received $1.6 billion in stock options. The SEC subsequently alleged that McGuire backdated the options to coincide with days when the company's stock hit historic lows. After stepping down, McGuire agreed to a $468 million settlement with the SEC (without admitting or denying the charges), plus reimbursements to the company for any equity earnings he received from 2003 to 2006, for a total of around $600 million. Without getting into the wonky accounting of it all, the SEC's charges alleged that McGuire knowingly "caused the company to understate compensation expenses for stock options," not to mention creating the opportunity for large profits for himself.
Still, that left McGuire with more than $800 million in options.
John Stumpf: $134 Million
Amid revelations that consumer banking giant Wells Fargo illegally created fake customer accounts to meet its employee sales goals, CEO John Stumpf resigned. He had been working at the company for over three decades, and CEO since 2007. As of this writing, it's unclear how much Stumpf could walk away with.
Some estimates of Stumpf's payout reach $200 million. But more recently executive-pay tracker Equilar says he'll walk away with $134 million, according to USA Today, even though he doesn't receive a special retirement payout.
"The package remains that large even after Stumpf last month agreed to a $41 million clawback following a grilling he received from the Senate Banking Committee reprimanding him for not taking responsibility," the USA Today report says. "He agreed to give up unvested stock, but still owns shares vested in previous years."
State and local municipalities including Illinois, California, Seattle and Chicago have publicly cut ties with Wells. While some analysts expect other government entities to make similar moves, the impact on Wells Fargo's revenues appears immaterial at this point.
Less than 1 percent of Wells Fargo revenue comes from working with local governments, non-profit hospitals and universities, according to a presentation the bank made to investors earlier this year.
The bank has also lost some retail customers, though Wells is still opening more accounts than it is closing, senior executives said on an internal call on Monday that was reported by the Wall Street Journal.