The deeper you dig into the Wells Fargo scam, the more disturbing it becomes.
At first it seemed that Wells Fargo & Co. (NYSE: WFC) simply had some "bad egg" employees that created some 2 million phony customer accounts to meet their sales quotas.
Now, Wells said it took corrective action by firing about 5,300 employees (out of a workforce of about 265,000) over the five years the transgressions took place, from May 2011 through July 2015.
"The 1% that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do. That's a false narrative," Wells Fargo CEO John Stumpf told The Wall Street Journal earlier this month.
But take a deeper look, and you'll find that corruption at Wells Fargo ran far deeper than with its lower-tier employees...
You see, over a period of at least eight years Wells Fargo had developed a toxic work environment that left many employees in a no-win situation. In many ways, they're just as much victims of the Wells Fargo scam as the millions of customers that had Wells Fargo accounts opened without their knowledge or consent.
The problem was the bank's focus on "cross-selling" - convincing customers to buy multiple bank products. Not only does cross-selling lift profits, it binds customers more closely to the bank - making them less likely to switch to a competitor.
Emphasizing cross-selling was the idea of Stumpf's predecessor as CEO, Richard Kovacevich, who arrived with the bank's merger with Norwest Corp. in 1998. But it wasn't until Stumpf took over as CEO in 2007 that the strategy turned to an obsession.
On the surface, the bank's cross-selling initiative was wildly successful - the envy of the banking industry. By 2015, Wells Fargo had raised its number of products per customer household to 6.32 - about twice the industry average. And the company's ultimate goal was eight.
But the means to that end is where this Wall Street scam turns dark...
The Genesis of the Wells Fargo Scandal
Although exact numbers varied from branch to branch, Wells Fargo employees were given exceptionally high daily sales quotas. The Wall Street Journal reported this month that at one branch in Lincoln, Neb., workers were expected to open two new checking accounts per day as well as make eight other product sales.
Meeting the sales goals meant bonuses for both the worker and his manager (higher-level managers earned bigger bonuses). But missing goals wasn't tolerated. Those who failed to make their sales quotas during regular hours were asked to make calls after hours - off the clock. Other motivational tactics included public humiliation in conference calls and threats of termination.
Related: Why I Wasn't Surprised by Wells Fargo's Scam
"We were constantly told we would end up working for McDonald's," one-time Wells Fargo branch manager Rita Murillo told the Los Angeles Times in its 2013 exposé. "If we did not make the sales quotas ... we had to stay for what felt like after-school detention, or report to a call session on Saturdays."
The relentless pressure from upper management left many employees with a choice between embracing unethical sales practices and giving up their jobs. Many tried their best to persuade customers to open unneeded accounts. Some begged friends and family.
A class-action lawsuit filed Sept. 22 by two former Wells Fargo employees said that "managers often tell employees to do whatever it takes to reach their quotas."
The suit describes several common "gaming" tactics, such as lying to customers about the need to open a savings account to avoid a fee on their checking account.
But often, even that wasn't enough...
How Fraud Became Common Practice at Wells Fargo
Desperate to meet their quotas, many employees resorted to creating additional accounts without customers' knowledge, complete with forged signatures and fake email addresses. This, too, was often encouraged by management.
The class-action lawsuit alleges that managers coached workers "to use various illegal schemes to open accounts fraudulently," typically "unauthorized fee-generating accounts."
An internal investigation of the Wells Fargo scam found that staffers opened more than 1.5 million deposit accounts and more than 565,000 credit card accounts. About 14,000 of these accounts generated more than $400,000 in fees.
"All it takes is a chief sandbagging motivator to threaten the troops and they start firing into the dark night," said Money Morning Capital Wave Strategist Shah Gilani, who edits the free newsletter Wall Street Insights & Indictments.
Gilani added that regulators failed to catch on because "they're blind to 'small time' customer complaints that can be rationalized as mistakes that happen and don't add up to much financially.
There's no smoking bazookas, just the faint smell of misfired black powder, which isn't the same as nuclear material leaking across the bank."
Incredibly, the bad behavior also was explicitly forbidden by official Wells Fargo policy. But managers obsessed with making their own sales quotas were reluctant to flag misbehavior.
Wells Fargo even had a "whistleblower" hotline available for employees to report unethical practices.
What happened to those who dared to use it is the most shocking part of the Wells Fargo scandal...
How Wells Fargo Kept Its Corporate Head in the Sand
CEO Stumpf claimed in a congressional hearing last week that Wells Fargo employees are "encouraged to raise their hand if something is being asked of them that they think is not right, not consistent with our values and our culture."
But the opposite was true.
CNNMoney found at least four Wells Fargo employees who used the ethics hotline to report unethical sales practices and were fired not long afterward.
One man, Bill Bado, called the hotline three years ago and sent an email to human resources, following company protocol. Eight days later Bado was fired for being late for work.
A former Well Fargo human resources staffer told CNNMoney that the bank would target any employee who dared blow the whistle on unethical sales practices. Any pretense would do, no matter how flimsy.
Related: How the Wells Fargo Scam Pulverized Customers' Credit Scores
"If this person was supposed to be at the branch at 8:30 a.m. and they showed up at 8:32 a.m, they would fire them," the staffer said.
Retaliation against whistleblowers is a clear violation of the law. But it was all part of a system designed to keep workers compliant and selling.
Even more troubling, this Wells Fargo scam isn't the only time the bank has betrayed customers to boost profits. Before it became obsessed with cross-selling quotas, WF was pushing its loan officers to sell subprime loans.
Beth Jacobson, one of the top sellers of subprime loans for Wells Fargo between 2003 and 2007, testified in a Baltimore court case in 2009 that some loan officers falsified applications so the borrower would qualify for the loan. She knew of reps who would "cut and paste" credit information from qualified borrowers into the applications of unqualified borrowers.
Given these alarming revelations, what should investors do about Wells Fargo stock?
The Wells Fargo Scam Makes This Company Much More Risky
Wells Fargo stock is down nearly 10% since the Sept. 9 revelations, although the stock is still up 144% over the past five years.
But the Wells Fargo scam leaves investors with some weighty decisions. The first is ethical. Do you want to own a bank that so easily betrays the trust of its customers?
The bank remains on solid footing, as the $185 million in fines represent a tiny portion of its $22.9 billion in annual income. But Wells Fargo will face an extended period of increased regulatory scrutiny. The extraordinary breach of trust has damaged its reputation and will be a drag on business for the foreseeable future.
New revelations/investigations/penalties could take another bite out of Wells Fargo stock. At best it will trade sideways for a while.
The Bottom Line: Long-term investors who are sitting on fat gains should consider taking profits and re-allocating the capital.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
As someone who worked for the "stagecoach" in retail banking as a Personal Banker (PB), I can tell you what wrecked it all.
At Wells, and like most banks, you are under pressure to sell X amount of "solutions" every day. Every branch has their own unique goals based upon the local economy. Mine was 11 solutions per day, as was for other PBs at the same branch. At the end of every quarter, if you did not meet a sum total it was put on record. Three quarters in a row of under performing and you got the boot.
At my branch there were seven other bankers and during the weekdays foot traffic was usually slow, which translates into less sales opportunity. On a very slow day, and there were many during the weekdays, there were somewhere between 50 – 100 customers that walked in. Roughly 75% come to make their deposit or withdraw money and didn't want to hear a sales pitch. So that leaves you anywhere from 15 – 25 customers throughout the day that presented a sales opportunity — not a guarantee. With competition between other bankers, things got very cutthroat and vicious, as everyone was trying to hold on to their job by meeting these goals.
Some were able to pull off their sales numbers being they were very savvy networkers who had sources outside the usual walk-in customer. Others who couldn't face up to the unrealistic sales quota resorted to gaming the system and magically hit sales goals with unneeded products. Some still fell short.
To cut to the chase, corporate culture at WFB had created this environment, most likely under pressure (as previously stated) from investors with an insatiable appetite for endless profit… and not excuses for poor stock performance. This is not to dismiss the wrong doing by corrupt retail bankers, but it was spawned by the threatening nature of the pressure placed on their shoulders. In my experience, I have seen grown men cry because they were going to lose their job. I had even personally witnessed another banker getting arrested during operation hours for fraud in a case that was bad enough to warrant such a consequence.
It's understandable that a business has to meet its bottom line and have the cash flows coming in, but Wells went beyond the scope of meeting the said bottom line. It came from greed at the top, mainly the investors who piled pressure on the executives. The executives then passed it on to district managers, which came down hard on individual branch managers.
During my one and a half year stint, and I'm glad it wasn't more, I had two branch managers. The first one got off easy and was transferred to another branch instead of fired. The second one who came in quickly realized what kind of pressure she was up against and had to helicopter manage every conversation between client and PB in order to maximize every opportunity for a sale, often interrupting the conversation to make a pitch. If a sale didn't happen, she'd scold the PB for not making it happen, even though there was no need from the client for a product. About six months later after I had left the bank, she was fired. Another banker, a six year veteran at that time in the same branch, was on stress leave.
From what I hear now, the goals are less, but how less is unknown since I haven't asked. But the goals and pressure is still there.
One thing that I don't understand is why Wells Fargo is getting the attention and not other banks such as Bank of America, Chase or Citi. They all have the same goal-oriented environment.
At the end of the day, the bankers who know they can't make the cut face a choice: Game the system so you can feed your family, or maybe not go homeless, whatever the case… or burn yourself out trying to meet these goals in a dead-end job that offers very little room for promotion outside of sales.
Again, what these bankers are doing is wrong, but it's the corporate culture that creates this type of environment. Until that changes, enjoy the many upcoming years-worth of sales corruption stories.
Either way, that's my story, an insider's experience and perspective.
Thank you for reading Money Morning, and thanks for sharing your story!
-Dave Zeiler, associate editor, Money Morning
so what are you doing now? flipping burgers or making candles?
This is the real truth, yet it's only WFB that is investigated and all others are reaping the results. Truth be told, all are guilty, shareholders and financial sales persons such as YOU are just as responsible, yet you do not share the blame only call the kettle black, so take a look at yourself.
You all make mistakes, yet reap rewards without penalty.
Junetth
Where were the bank's auditors? All these new accounts without corresponding new revenue. Red flag (if you are looking for a flag).
In April 2013, I wrote a good size check for my cousin for some work he did on my home and when he went to Wells Fargo to cash it, he was told the signature didn't match. I drove over to Wells Fargo right away, I was told by the teller, the signature is not the same as what they had on file, I demanded a copy of the signature on file, the teller said I would have to get that thru a manager and had one come and get me at that time I was told the best option was to close that account and and open a new one. I was given a printed copy of the signature they had on file, which I confirmed it was NOT my signature. I have the original copy given to me packed away BUT I did scan and copy to my computer and willing to show proof of my signature compared to the one given to me by Wells Fargo claiming it was mine. Any professional or non professional will clearly see the new signature Wells Fargo had on file WAS NOT MINE!!!
Just reading this story really makes me sick because it's really indicative of too much of the corporate culture in general. In dealing with many businesses, I run into too much "strangulation"… the company squeezing the supplier and over selling to the customer. What happened to an honest days work for an honest days pay? Is this caused by too much paying the government in taxes and regulation and the other in the lack of ethics from our own upbringing? Me thinks so…..so sad. It doesn't end well…history says so.
The Wells Fargo Scandal is Bigger than Most People Realize
The ongoing fake account scandal at Wells Fargo has finally brought attention to the overly aggressive sales practices at the bank. These practices have been an inherent part of the company culture for many years and were well-established when I joined the bank as an employee approximately six years ago. This has been going on for much longer than most people realized and extends throughout the entire retail bank. Unfortunately, what has been exposed to date is only the tip of the iceberg.
For fear of losing my job, I desire to remain anonymous, but in light of the recent scandal and the response to it, I feel a duty to point out that this issue is about the company’s sales culture and that upper and middle management need to take full responsibility for what has gone on. This is not a problem rooted in the 5,300 employees who were fired, nor was it limited to the branches, nor does it originate there. In addition, the problem is certainly not limited to the Los Angeles market as some have suggested, nor was it more prevalent there. The fact that the City Attorney there was the one who had the courage to take on Wells Fargo over these issues has made the investigation focus on that area, but the problem is companywide across the entire footprint of the bank.
The 2 million fake accounts represent only a fraction of the true number. The internal audit that revealed these accounts only looked at accounts that were never signed for or used. Millions more were signed for by customers who unwittingly opened additional unneeded accounts and applied for unneeded credit products. Common ways this was done were opening “umbrella” accounts for Portfolio Management clients with $25,000 or more in deposits, telling them they needed this account to keep their other accounts “free.” Another popular scam was the “protection” account, instilling fear in clients that they could be wiped out by online shopping or travelling and needed a separate special account for that purpose. Many of the other sales tricks and methods employed to meet sales goals have been enumerated elsewhere. These were not invented by bankers these were taught by district managers and above as legitimate sales tactics. Employees who played along were compensated and promoted. If they were caught management could easily wash their hands of a “bad apple” and claim they had not promoted the behavior or condoned it, just as upper management has tried to do since the scandal broke on a national level.
The fact is that most customers come into the bank looking for financial guidance and trust that the banker has some level of knowledge and experience and is looking out for their best interests. Sadly, this is rarely the case. A banker usually has no more than a high school degree and a 4-5 week training program that focuses mainly on how to use the computer systems and sales tactics to sell products. They do not receive financial education. Many have poor personal financial histories of their own. So, in many cases, when a customer sits with a banker to discuss their financial needs, it is the blind leading the blind.
Bankers have become glorified sales people just like at any mall retail outlet. They have no special qualifications or experience. They are taught only to push products. This aggressive sales culture promotes youth and inexperience because those I employees lack the life experience, knowledge or education to know any better. As a result of this, the bank is guilty of discriminating against older, more experienced people in retail banking as they seek young aggressive salespeople who know only one thing – to push as many products on a customer as possible without regard for their financial needs, which most bankers are unable to even assess properly. This is true across the industry, but to my knowledge and in my experience no one has taken it to the level of Wells Fargo’s “cross-selling” culture.
This is not the fault of the employees. The vast majority are good and honest people trying to make a living and provide for their families. They are underpaid and subjected to great stress, in many cases forced to falsify time cards so as not to incur “overtime” and to accurately report the time actually worked. They are not properly trained and in some cases find themselves in the wrong job. The problem is that Wells Fargo promoted an aggressive sales culture that rewarded those who hit unrealistic goals and were promoted solely because of sales skills, not their financial knowledge or for looking out for the best interests of the bank’s customers. This sales pressure came directly from upper and middle management. While upper and middle management feigns adherence to the bank’s ethics policies, they turned a blind eye whenever those of us who objected to these practices reported it and in many cases we were punished by management for doing so.
As I mentioned, at the heart of this aggressive sales culture is widespread age discrimination issue that has yet to be investigated. There are 2 aspects to this. One is that elderly clients of the bank were often targeted. They were seen as easy prey for aggressive young bankers who could smoothly talking them into signing for products or services that they did not need and this practice was fully supported by middle management. I have seen countless cases of elder abuse over the years that resulted directly from aggressive sales tactics and have spent much of my career at the bank fixing these type of problems. The other part of the age discrimination issue is that the bank has driven out or held back older more experienced employees because their knowledge and experience led them to question management’s aggressive sales tactics. Again, I can point to many examples of this and I am certain that there are many more of which I am unaware. As a result of this “culture of youth” which has been an integral part of the aggressive sales culture at Wells Fargo, branch banking has suffered and the quality of customer service has eroded.
The people most responsible for this scandal are middle and upper management which oversees the branches. They promoted many people to branch management positions whose only qualification was hitting aggressive sales goals at all costs, even though they lack basic financial literacy to provide guidance to customers truly seeking financial advice and assistance. Numerous managers and district managers from our market, who notoriously engaged in these practices, were promoted to other markets where they continue to spread this poisonous culture. When Wells Fargo acquired Wachovia during the financial crisis upper management quickly moved to send its most aggressive sales people and place them in management positions throughout the old Wachovia footprint. A fundamental problem is that these middle management people are the most insulated and protected from any repercussions of the scandal they in large measure helped to create and to which they owe the positions they now hold. They will blame the people below them if the unethical practices they promote are revealed and the lower level employees will be the ones fired or held accountable as has been the case to date. In the meantime, while politicians, regulators, and stockholders attempt to hold those at the top accountable, only upper management can hold middle management responsible for their actions. To truly change the culture in this company one needs to change middle management that has created this culture and knows nothing else. Bankers and managers also need to be provided with real financial education, not just taught slick sales tricks.
To give you an example of how deeply ingrained this culture is there were two conference calls held last week, one immediately after the other. The first was the company-wide call announcing that sales goals would be eliminated effective January 1. This was immediately followed up by one of the usual weekly and or daily calls depending on the district, berating managers that they still have sales goals to meet. The company has lost its direction and change will be long and hard until the people at the top and in the middle management positions change.
To provide some specifics, there was a notorious example of a bank employee who consistently met their credit sales goals by hitting an unheard of 600-700% to goal quarterly. No other banker in the state even came close to these numbers. Rather than this being a warning sign to management that something is seriously wrong, middle management held this person up as an example for other branches and bankers to follow. I personally handled numerous complaints about this person opening credit accounts for people who did not want them, but they were ignored by middle management. Finally, together with my branch manager at the time, who is one of the few experienced and highly ethical people left in branch banking because of management’s aggressive sales and promotion policies, we uncovered specific evidence of massive fraud against elderly clients by this person. Management was forced to investigate and even with all the evidence in front of them, they wanted to let this person off with a warning and keep them producing the outstanding numbers that they thrived on. They only fired this person when I had an actual victim in the branch complaining while the investigator was there overhearing the conversation, and still my manager had to threaten to resign if the District Manager did not fire this person for these practices that we knew attacked the integrity of us all.
Another area of the Wells Fargo “cross-selling” culture is the sale of insurance products to customers. Banker who are unlicensed in insurance are forced to sell insurance products to bank customers. To get around licensing restrictions, the banker is supposed to get the client on the phone with a licensed Wells Fargo insurance agent. To do this, however, the banker still has to get the client wanting to buy insurance which means that the banker is effectively an unlicensed insurance agent. In addition, the banker is compensated for what are called “partner referrals.” If this does not break existing insurance laws it certainly pushes the margin of the law. Entire meetings and calls are held to compel bankers to push insurance products on bank customers even though they hold no license for insurance products.
There are many good people in the branches working to help customers every day. Unfortunately, many of them do not have the tools and education to help them properly. Even more sad is that management has driven out or marginalized older more experienced employees who refused to play this sales game. I can give numerous examples of tellers, bankers, and managers in the branches who were not made welcome by this aggressive sales environment fostered by middle and upper management. This the real tragedy of Wells Fargo, both the employees and the customers have suffered because of an aggressive sales culture designed to push up a stock price and generate profits.
It was appalling to hear upper management blame a handful of bad employees for this problem. The problem is endemic to Wells Fargo’s culture. The only way for true change to happen at Wells Fargo is for upper management to accept full responsibility and immediately resign and for new management to root out the middle management that oversees retail banking and who fostered this toxic culture and were promoted to these positions on the backs of the branch employees who felt constantly under threat for their jobs. Only when this is done can the bank move to rebuild the trust of both its employees and its customers.
And Obama and the main stream media tell people the economy is better and getting better.
So I am a Wells Fargo customer still (I'm not really sure why), and I was made to be a part of 3 of the scams written about in this article. What do the people like me, do now? I am still very, very upset with this bank. I was scammed out of almost $1,500.00! AND ~ I WANT IT BACK. Is there anything that I can do outside of hiring an attorney. I am a disabled woman of 61 years of age. I sure hope that I will hear from you so very soon! Regards and thank you for this valuable information.