(Repeats for wider distribution)
By Dan Freed
NEW YORK Oct 13 Tim Sloan will not have much
time to prepare his pitch for Wall Street.
The newly installed chief executive of Wells Fargo & Co
will present third-quarter results on Friday, less than
48 hours after replacing John Stumpf at the helm of the bank.
Investors are seeking reassurance that Wells Fargo can
rebuild its reputation and retain profits while overhauling the
hard-charging sales culture at the heart of a scandal over
Sloan's nearly 30 years with Wells, largely spent on the
corporate and institutional side of the bank, and his moderate
temperament make him a safe pair of hands.
But as chief operating officer of the bank since November
2015, he had oversight over Wells' retail division, where
employees opened up to 2 million accounts without customers'
knowledge, some of them during his tenure as COO.
Much of his success will depend on how he navigates the
demands of Wall Street for growing returns with the political
and public clamor for change.
"The fact they have named him CEO indicates to me that he
has at least passed some litmus test about his part in all of
this and indicates to me that there was little or no part," said
Nancy Bush, an analyst with NAB Research, which owns Wells
"I know Tim, he has vast experience in every part of Wells
Fargo and yes, I think he is the right man."
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
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
"I don't think there will be a surprise to the downside in
terms of the legal cost. The surprise will be that it's more
than anyone suspects right now," said Michael Holland, president
of Holland & Co, which manages $5 billion worth of investments.
Wells' settlement on Sept. 8 with the Consumer Financial
Protection Bureau, Office of the Comptroller of the Currency and
a Los Angeles prosecutor revealed the bank had opened as many as
2 million accounts in retail customers' names without their
permission. 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.
Khalid Taha, a former Wells Fargo personal banker who left
the bank in July after suing them over sales pressures, said
Sloan did not represent a new era.
"Wells Fargo's problems go from top to bottom," he said.
"Sloan is part of that problem. I can't see him as a solution."
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
"The damage to customers could be much more significant,"
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
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.
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.
"It's not business as usual at Wells Fargo. There's an
enormous amount of work to be done to regain the public's
trust," said Thomas Russo, managing member at Gardner, Russo &
Gardner, a top 50 shareholder.
(Additional reporting by Elizabeth Dilts.; Editing by Lauren
Tara LaCapra, Meredith Mazzilli and Bernard Orr)