Wells Fargo is making major changes to how it manages retail staff, and one prominent banking sector analyst says other big Wall Street banks may have to follow suit.
The San Francisco-based bank’s culture and compensation practices are coming under scrutiny from federal prosecutors, according to a Dow Jones report late Wednesday.
Wells Fargo is killing off product sales goals for its retail bankers, in the wake of receiving a $185 million fine from regulatory agencies including the Consumer Financial Protection Bureau. More than 5,000 staffers have been fired since 2011 after it was revealed they opened 1.5 million deposit accounts and 565,000 credit cards Wells Fargo could not determine were ever authorized by users.
There is no indication that any other big banks have opened unwanted consumer accounts. However, virtually every major financial institution ties a portion of retail bankers’ compensation to sales goals — for now, at least.
“All the banks do it, I don’t know of any bank that doesn’t do it,” said Dick Bove, vice president of equity research at Rafferty Capital, said of sales goals for retail banking employees. “If there is one bank that isn’t doing it, it’s a badly run institution.”
For decades, big banks sought to put tellers in a position to improve product sales, Bove said, but regulators and elected officials may now step up pressure against that business model.
The prevailing political mood is likely to become more clear when Wells Fargo CEO John Stumpf speaks next week before the Senate Banking Committee in Washington.
Despite the outcry over unauthorized accounts, Stumpf said yesterday that he has no plans to resign.
Any changes to how retail bank employees operate could result in substantial shifts in banks’ quarterly earnings reports; Wells Fargo’s community banking division was responsible for $12 billion in revenue in the second quarter, making up more than half of its net income in that time frame. In the wake of the unfolding story at Wells Fargo, Bove said a sea change could be coming to Wall Street.
“Other firms are going to rethink this whole policy,” he said. “You’re going to see customer satisfaction ratings become more important.”
But, for now, the banks are mum on making changes. JPMorgan Chase,Citigroup and Bank of America declined to say whether they, too, would consider altering how retail bankers’ performance is evaluated.
Richard Cordray, director of the CFPB, told CNBC earlier this week that he does not believe Wall Street has a systemic problem with regard to retail staffers committing fraud to meet performance objectives, adding that he and other regulations will remain vigilant investigating banks.
“I guarantee you that we will be seeing that it does not happen again at any bank,” he said.