Following revelations that the San Francisco-based bank abused customers over the past decade by opening millions of unauthorized accounts in their names to meet aggressive sales goals, just three members of its 15-member board of directors were replaced. The bank all but declared victory, highlighting its "strong actions" to improve corporate governance.
But for federal banking regulators, it wasn't enough. On Friday, Wells Fargo announced additional sanctions imposed by the Federal Reserve that include replacing four more directors and an agreement to halt new asset growth until board oversight improves.
And according to CEO Tim Sloan, the ban on will cut net income this year by $300 million to $400 million, adding to hundreds of millions in fines and settlements the bank has agreed to since the scandal unfolded.
In premarket trading Monday, Wells Fargo shares were down 7.1% to $59.56.
The latest development in the saga shows how regulators, even in President Donald Trump's era of relaxing rules on the financial industry, sometimes push big U.S. banks to replace failed board members when the institutions are too sapless do it themselves. Last year, Wells Fargo's board conducted a self-assessment facilitated by former Securities and Exchange Commission Chair Mary Jo White that largely exonerated directors as having been kept in the dark about the depth of the bank's troubles.
"Regulators are the ones that can put the hammer down," Ian Katz of the regulatory consultancy CapAlpha said Sunday in a report. "The Fed just put the fear of God into bank boardrooms across the country."
U.S. Senator Elizabeth Warren, a Massachusetts Democrat, had demanded that a dozen board members be replaced over the scandal, and even shareholders rebuked the directors at the bank's annual meeting last year when several of them were reelected with fewer than 60% of votes -- tantamount to rejection in a system where elections are typically unopposed.
Among the directors who might be forced to depart: Enrique Hernandez Jr., who received just 53% of votes at the annual meeting -- the lowest among all nominees.
Hernandez has been criticized by corporate-governance experts for collecting some $24.4 million in payments from the bank for his private security company while supposedly looking out for shareholders as an independent director. California Treasurer John Chiang, who's responsible for allocating some $2 trillion a year in state banking transactions, has called for Hernandez to step down.
He was spared a forced departure last year after he managed to get a role writing the final report on the bank's self-assessment. That report highlighted Hernandez's active role in pushing former CEO John Stumpf to address the sales practices - but only after they were highlighted in a series of articles in the Los Angeles Times.