The costs of the sham accounts fiasco at Wells Fargo & Company (NSYE: WFC) continue to grow.
Wednesday it was announced that the state of California "suspends business relations" with Wells Fargo.
"California, the nation's largest issuer of municipal bonds, is barring Wells Fargo & Co. from underwriting state debt and handling its banking transactions after the company admitted to opening potentially millions of bogus customer accounts."
"The suspension, in effect immediately, will remain in place for 12 months, State Treasurer John Chiang said Wednesday. "Complete and permanent severance" between his office and the bank will occur if it doesn't change its practices, he said. The treasurer is also suspending his office's investment in Wells Fargo securities."
This follows clawbacks instituted by the Wells Fargo Board of Directors, which will cost John G. Stumpf, chairman and CEO of Wells, approximately $41 million in stock awards, his salary during the board investigation into bank sales practices, and will eliminate all possible bonuses for 2016, and will also cost former senior executive vice president of community banking Carrie L. Tolstedt, $19 million in stock grants, who was immediately retired.
Questions are even being raised about the Wells Fargo board, a board that appears to be made up of all the right parts. Yet even with two former bank regulators on the board, the current culture can into place and, apparently, thrived.
As I wrote in my post "Wells Fargo: Management Lesson?" the primary responsibility for the culture of the bank…or, for that matter, any organization…in my mind, is the CEO. Everything that he or she does or says should reflect the culture of that the chief is trying to breed within the company. This is what I attempted to do in the two financial organizations where I was the CEO.
Thus to me, the CEO is the person that must be held accountable for whatever culture permeates an organization.
It is the responsibility of the board of directors to buy onto the culture that the CEO is attempting to achieve and it is the board's responsibility to hold the CEO accountable for achieving that culture.
According to Gretchen Morgenson in the article just cited, the board of directors of Wells Fargo is now trying to "catch up" with its responsibilities.
But, in a real sense the board is way behind the curve.
As I wrote on Tuesday, this scandal concerning "sham accounts" has been going on for some time. There was information around. The board did not perform its responsibilities.
And, now the costs expand.
This is always the problem when the culture goes awry. The consequences accumulate.
How far the consequences go is another matter.
The problem is that once started they can take on a life of their own…something that seems to be happening with Wells Fargo right now.
Thursday, Mr. Stumpf appears before another congressional committee.
My guess is that this will be a very rough day for Mr. Stumpf.
Congress will not…because they really cannot…let Mr. Stumpf get away with anything. There has been too much publicity about this whole "sham" affair.
Whether or not Mr. Stumpf keeps his job is another question.
Given we are in the political season, politicians will not…for they cannot…let Mr. Stumpf and Wells Fargo off easy, given how the electorate feels about the economy and the financial system.
My bust guess is that there will be a lot of news about Wells Fargo in the press over the near term. This is not going to go away easily.
Other people will be hurt. Stock holders will suffer.
And, then we wait for the board to decide on what it will do. In such cases, strong action is needed.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.