Wells Fargo & Co. moved ahead Thursday on addressing Federal Reserve regulatory concerns by announcing that four board members — including its three longest serving — would not seeking reelection in April.
On Feb. 2, the Federal Reserve said Wells Fargo wouldn’t be allowed to grow its total assets beyond the $1.93 trillion it had on Dec. 31, 2017. The restrictions could require Wells Fargo to divest some businesses to avoid violating the total asset restrictions.
“In recent years, Wells Fargo pursued a business strategy that prioritized its overall growth without ensuring appropriate management of all key risks,” according to the Fed.
In response to the Fed restrictions, Wells Fargo said Feb. 2 that three board members would retire by the time of its annual shareholder meeting on April 24, and a fourth member by the end of the 2018.
The bank identified Thursday the retiring board members as John Chen, Lloyd Dean, Enrique Hernandez Jr. and Federico Pena.
Chen, Dean and Hernandez are the bank's longest serving directors. The other 12 board members will be nominated for another term.
"We respect their decisions to retire and know our board benefited greatly from their expertise and perspectives during their many years of service," Chairwoman Betsy Duke said in a statement.
Duke became chairwoman on Jan. 1, being promoted from vice chairwoman as part of another major board transition.
Duke is one of five board members who were serving before the customer account scandal became public in September 2016. The others are John Baker II, Donald James, James Quigley and Suzanne Vautrinot.
There continue to be calls among consumer advocates and some Democratic congressional leaders for those members to step down, along with Chief Executive Tim Sloan, who took over from John Stumpf, who chose to retire as chairman and chief executive in October 2016 amid intense criticism and calls for his job from consumer advocates and lawmakers.
Wells Fargo said Feb. 2 that “it is confident it will satisfy the requirements of the consent order” and that it will provide “plans to the Federal Reserve within 60 days that detail what already has been done, and is planned, to further enhance the board’s governance oversight, and the company’s compliance and operational risk management.”
The bank conducted its first major board shakeup on Aug. 15 with then-Chairman Stephen Sanger, Cynthia Milligan, a 25-year board member, and Susan Swenson, a 19-year board member, retiring at the end of 2017.
Sanger took over for Stumpf in October 2016.
The board transition represents the bank’s latest attempt at recovering from multiple customer-account scandals.
The beleaguered bank has called the changes ”refreshment actions,” which also included electing in September Juan Pujadas, a retired principal of Pricewaterhouse-Coopers, as an independent director and altering the composition of committees.
Sanger said the changes “reflect a thoughtful and deliberate process by the board” that was “informed by the company’s engagement with shareholders and other stakeholders.” He said the changes were influenced by the board’s annual self-evaluation following its 2017 annual meeting.
Analysts, investors and key congressional leaders, in particular U.S. Sen. Elizabeth Warren, D-Mass., have been calling for significant changes to the Wells Fargo board since the scandal involving at least 3.53 million checking and credit card accounts erupted nearly a year ago.
The Securities and Exchange Commission, the U.S. Justice Department, state attorneys general offices and at least two congressional committees are conducting inquiries into the bank.
Wells Fargo confirmed Aug. 4 it could experience overall losses reaching $3.3 billion in its attempt to resolve its customer-account scandals. The estimated loss has more than tripled since October 2016.
That amount was lowered to $2.7 billion as of Dec. 31, according to its fiscal 2017 annual regulatory report released Thursday.
Wells Fargo spokesman Peter Gilchrist said Friday the $3.3 billion amount "is the high end of the range of reasonably possible potential losses in excess of the company’s accrual for probable and estimable losses. The biggest issue is that it is not specific to sales practices."
In October 2016, community bank head Carrie Tolstedt resigned and was retroactively fired with cause. Stumpf lost $69 million in compensation as one ripple effect of the scandal.
Another ripple effect was the board’s decision Dec. 1, 2016, to split permanently its chairman and chief executive jobs by incorporating the requirement into its bylaws. The chairman and vice chairman are required to be independent directors.
Analysts said the board changes, particularly naming Duke as chairwoman, could help rebuild investor and customer trust in the bank.
Chris Marinac, managing principal of financial services firm FIG Partners of Atlanta, said in August that the moves are “one way of putting the entire issue of credibility behind it.”
“I still contend that Wells Fargo makes enormous amounts of money and that the company remains very well positioned for the future."
However, Marinac's projection that the board changes would help the bank put "this saga soon in the rearview mirror" has not come to pass.
ISS, an investor shareholder services company, recommended in April 2017 that shareholders vote against re-electing 12 of Wells Fargo’s 15 board members, including Sanger. Shareholders kept every director, although four, including Sanger and Milligan, received less than 60 percent of the shares voted.
The board took seven months to issue what appeared to be a mea culpa for the scandal. The board concluded in a 113-page report released in April 2017 that Tolstedt and Stumpf were at the center of the fault and blame.
The report drew mixed responses from banking, investor and marketing analysts, with some praising the board for its thoroughness in describing the actions, while others accused the board of window-dressing tactics ahead of the 2017 shareholder meeting.
Tony Plath, a finance professor at UNC Charlotte, said the board moves, including Duke’s appointment, “are clearly, at last, a step in the right direction, and aren’t window dressing at all.”
“It demonstrates that the board understands that it plays an important role in the culture and strategy of the organization. When that culture and strategy become dysfunctional, then the board bears final accountability for its mistakes.”
However, Plath cautioned these moves alone “won’t resolve all of the trust issues that face Wells Fargo since at this point they’re simply too broad and pervasive within the bank’s culture.”