Wells Fargo Chairwoman Resigns Days Before Congressional Hearing

The overall committee staff findings include:

* Financial regulators knew about serious, enterprise-wide deficiencies at Wells Fargo for years without taking public enforcement action;

* Wells Fargo's board failed to ensure management could competently address the company's risk-management deficiencies;

* Wells Fargo and the Consumer Financial Protection Bureau's political appointees had back channel communications regarding the bureau's Compliance Risk Management Consent Order;

* Wells Fargo's board allowed management to repeatedly submit materially deficient plans to regulators in response to the consent orders;

* Both Wells Fargo's board and management prioritized financial and other considerations above fixing the issues identified by regulators; and

* Wells Fargo's board failed to hold senior management accountable for failing to meet regulators' expectations.

The chairwoman of Wells Fargo & Co., Betsy Duke, is the latest top bank official to step down in connection with the fraudulent customer-account scandal that surfaced publicly in September 2016.

The bank issued a statement Monday announcing the resignations of Duke and board member James Quigley.

Duke, who resigned Sunday, had served as chairwoman since January 2018 and was vice chairwoman from October 2016 to December 2017.

Duke replaced Stephan Sanger as chair, who replaced John Stumpf, who was allowed to retire as chairman and chief executive by the bank in October 2016.

Charles Noski takes over as Wells Fargo's chairman, the fourth since the scandal went public. He joined the board in June. He is a retired vice chairman and former chief financial officer of Bank of America Corp.

The resignations of Duke and Quigley came three days before they were scheduled to testify at 10 a.m. Wednesday at a U.S. House Financial Services committee following a committee report released last week that lambasted the bank's response to regulatory orders since the scandal erupted.

The summation of the 113-page report is that the bank has failed to fully comply with five regulatory orders issued in response to the scandal. It was based partly on internal Wells Fargo memos and e-mail exchanges.

One example cited was Duke, then acting as vice chairwoman in November 2017, questioning why she was being included in letters from the Consumer Financial Protection Bureau requesting bank actions on regulatory orders.

A summation of the report determined "the potential for widespread consumer harm still remains at Wells Fargo."

Emails paint pictures

Both Duke and Quigley were on the board prior to September 2016. Their resignations leave just John Baker II, Donald James and Suzanne Vautrinot as the only pre-scandal members still serving on the 14-member board.

The report - titled "The real Wells Fargo: board & management failures, consumer abuses and ineffective regulatory oversight" - represents a yearlong investigation into Wells Fargo's compliance with regulatory orders made in 2016 and 2018.

The report was based partly on internal Wells Fargo memos and e-mail exchanges.

Wells Fargo confirmed Monday chief executive Charlie Scharf will appear before the committee at 10 a.m. Tuesday.

Waters said the report confirms her belief that Wells Fargo is "a reckless megabank with an ineffective board and management that has exhibited an egregious pattern of consumer abuses."

Last week, she called for the resignation of Duke and Quigley. "They failed in their responsibilities as board members, and they should be shown the door," Bloomberg News quoted Waters as saying.

Duke and Quigley said in a statement that they "believe our decision will facilitate the bank's and the new CEO's ability to turn the page and avoid distraction that could impede the bank's future progress."

"Out of continued loyalty to Wells Fargo and on-going commitment to serve our customers and employees, we recommended to our colleagues on the board that we step down from our leadership roles and they have accepted our resignation from the board."

The resignations of Duke and Quigley were similar in tone to the departure of chief executive Timothy Sloan, who also cited a desire to help the bank move forward when he retired amid congressional and advocate pressures in March 2019.

Duke and Quigley said they believe they had made progress in "strengthening the bank's culture and controls," including by hiring Scharf as chief executive in October and adding other external executive management members.

"As the markets face increasing volatility, a strong Wells Fargo is needed now more than ever," they said.

Scharf said in the statement that Duke and Quigley "have helped the board navigate significant challenges relating to the sales practices issues, and they began the hard work of instituting necessary changes in leadership, governance, compensation programs and our business model that form the foundation on which we are continuing to rebuild the trust we've lost."

Sloan criticized

Wells Fargo has 3,600 employees in its 32-county Triad West region, including 2,900 locally. It has 25,100 employees in Charlotte.

The bank acknowledged in 2017 the opening and issuing of at least 3.53 million unauthorized checking and savings accounts, debit cards and credit cards between 2009 and October 2016.

Although the bulk of the fraudulent accounts were established in California and Arizona, the bank has said it cannot rule out that 38,722 unauthorized customer accounts were established in North Carolina and 23,327 in South Carolina.

Sloan, who resigned after 2½ years in the role, drew much of the scrutiny in the report.

The report cited that Sloan "gave inaccurate and misleading testimony to Congress" during a March 2019 Finance committee hearing in which he discussed the bank's efforts to fix its customer-account problems. Waters said she is considering asking the U.S. Justice Department to review Sloan's comments.

"Key leaders at Wells Fargo were focused on lifting the Federal Reserve's asset cap, rather than addressing the company's systemic risk management weaknesses," according to the report.

The biggest shadow still hanging over Wells Fargo is the Fed's order, issued Feb. 3, 2018, that prohibits the bank from increasing its total assets beyond the $1.93 trillion it had on Dec. 31, 2017.

Federal regulators criticized

The report cited a concerning lack of action and oversight from the U.S. Office of the Comptroller of the Currency and Federal Reserve as Wells Fargo conducted the fraudulent business practices at the heart of the scandal.

The report found Wells Fargo executives, led by Sloan, responded to the regulatory orders with actions "that reflect an unwillingness to take seriously the bank's obligations under the 2016 Sales Practices Consent Orders to fully compensate harmed consumers and fix its internal controls."

Republican members of the House Finance committee issued their own analysis of the report Thursday. Republicans agreed with the assessment that "Wells Fargo's uniquely flawed structure and gross mismanagement have stunted the company's response to the scandal."

They also blamed lax regulators under the Obama administration for "being slow to recognize the risk," allowing the scandal to become as widespread as it did.

"Wells Fargo was no closer to complying with the regulators' consent orders when (former chief executive) Tim Sloan resigned in March 2019 than when his team took over in 2016," according to the GOP statement. "The management team of company insiders failed to understand the scope of the company's problems when Sloan took charge in 2016.

On Monday, Rep. Patrick McHenry, R-N.C., said in commenting on Duke and Quigley's resignations that "fresh perspectives on the board will help move Wells Fargo forward.

"The Republican report shows, time and time again, the bank's reliance on the status quo has consistently failed. I expect that these changes to board and management leadership - and the Trump administration's renewed focus on oversight - signal a new day for Wells Fargo."

[email protected]@rcraverWSJ