Wells Fargo & Co. (WFC) - Get Report , the U.S. bank struggling to mend its reputation after scandals involving fake accounts and unneeded car insurance, is replacing the board chairman lambasted by investors and lawmakers with a former Federal Reserve governor.
Elizabeth "Betsy" Duke, 65, will succeed Stephen Sanger in the role on Jan. 1, the San Francisco-based lender said Tuesday, Aug. 15. Sanger and two other long-term directors, Susan Swenson and Cynthia Milligan, will retire at the end of this year.
Shareholders of Wells Fargo rebuked the board sharply at the company's annual meeting in April, where Sanger garnered a reelection tally of just 56%. In the months since, Sen. Elizabeth Warren, a Massachusetts Democrat and advocate for tighter bank regulation, has urged the Federal Reserve to remove directors who failed to prevent problems that hurt consumers and tarnished the bank's reputation.
The bank is "reacting to the investor expectations that things have to improve," Hank Boerner, chairman of Governance & Accountability Institute Inc., a New York-based consultancy, said in a telephone interview. "Bringing in new independent directors, moving tenured directors out and bringing in fresh blood, those are moves in the right direction."
In September, the lender agreed to a $185 million settlement with federal and local regulators over the creation of more than 2 million unauthorized customer accounts by workers trying to meet ambitious sales targets.
The fallout led to contentious Congressional hearings as well as the abrupt retirement of former Chairman and CEO John Stumpf and cost Wells Fargo a number of lucrative government bond deals.
Then, last month, as Stumpf's successor, Tim Sloan, was making progress in restoring the bank's reputation, Wells disclosed that some 490,000 car-loan customers were erroneously charged for insurance they didn't need. An additional 60,000 in states with specific disclosure requirements may not have been told about the insurance by the third-party vendor that issued it, Wells said.
While the bank has promised to correct the problems and refund money to affected customers, the revelation has already prompted two federal lawsuits that are seeking class-action status.
"The changes announced today reflect a thoughtful and deliberate process by the board that was informed by the company's engagement with shareholders and other stakeholders, as well as the board's annual self-evaluation," Sanger said in the statement. The 72-year-old former CEO of General Mills would have been barred from seeking another term because of his age.
Duke, his successor, was a governor of the U.S. central bank from 2008 to 2013, a period that included the height of the global financial crisis. She was previously COO of TowneBank and an executive vice president at Wachovia Bank and SouthTrust Bank -- both now part of Wells Fargo.
"Betsy was the unanimous choice to lead the board as it continues its focus on strengthening oversight and rebuilding the trust of shareholders, customers and other stakeholders," Sanger said in the release. "Her broad understanding of the financial system and markets combined with years of Main Street community banking experience make her the ideal chair."
Along with the three retirements, Wells Fargo announced the appointment of Juan A. Pujadas, a retired principal of accounting giant Pricewaterhouse Coopers and former chief risk officer for Santander Group's investment bank, effective Sept. 1. The board expects to name as many as three more independent directors before next year's annual meeting.
"The board changes are not enough to keep current management out of the spotlight," Brian Kleinhanzl, an analyst for brokerage firm Keefe, Bruyette & Woods in New York, wrote in a note to clients on Tuesday. "There will still be pressure to see greater management changes."
The next day, Sen. Warren wrote a letter to Fed Chair Janet Yellen reiterating her earlier recommendation that the Fed use its authority to remove 12 board members who served from 2011 through 2015, the bulk of the period covered in the fake-accounts settlement.
"The case for removing these directors has gotten even stronger in the two weeks since my last letter to you," the senator said, citing reports on the car-insurance issues as well as claims that the bank failed to refund money to customers who paid off car loans early and overcharged small businesses for processing credit card transactions.
"Between 2011 and 2015, Wells Fargo seems to have had an almost limitless capacity to cheat its customers and shirk its regulatory responsibilities," Warren wrote. "Yet a dozen board members from that period continue to serve today."
Wells Fargo shares fell 16 cents to $52.69 in New York trading the day after the announcement. Although the shares previously wiped out an initial slide following the fake-accounts scandal to post a cumulative increase of 6.2%, that's less than half the gains on the broader KBW Bank Index and the S&P 500.
Updated from 6:11 p.m. on Tuesday, Aug. 15, 2017.
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