Lobbyists who’ve been bashing away at Washington’s latest effort to regulate Wall Street bonuses may find the Wells Fargo & Co. scandal just grabbed the hammer from their hands.
The lender’s turmoil over fake accounts, fees that shouldn’t have been charged and thousands of firings comes at a bad time. It created an awkward backdrop for House Republicans this week, as some of them hyped a bill that would repeal much of the Dodd-Frank Act. Wells Fargo’s settlement with regulators also emerged just as banks are arguing that a proposed pay rule meant to rein in excessively risky behavior went way too far.
Facing allegations that demanding sales targets incentivized employees to break the law, Wells Fargo’s conduct in many ways underscores exactly what the Federal Reserve and other agencies were trying to tackle in April when they issued their proposal on Wall Street compensation. In addition to forcing executives to wait longer before they can spend their bonuses, it says big banks would have as long as seven years to take back pay from employees tied to major misconduct or enforcement actions, even if the bonus is already vested or the person no longer works for the firm.
“This Wells Fargo scandal has become Exhibit No. 1 for those who support a tough clawback rule,” said Ian Katz, who tracks regulatory developments at Capital Alpha Partners in Washington. He said public outrage over the $185 million of fines imposed on the San Francisco-based bank makes softening the proposal less likely.
Brian Gardner, an analyst at Keefe Bruyette & Woods, agreed, saying in a Thursday note to clients that Wells Fargo’s settlement might actually pressure regulators to “toughen proposed rules on executive compensation.”
An array of consumer advocates and lawmakers already started calling for the bank to take back bonuses.
Carrie Tolstedt -- the 56-year-old former head of Wells Fargo’s community-banking arm whose retirement was announced two months before the government settlement -- has drawn a spotlight because of the millions she still stands to receive. Though news accounts may have inflated the bonus money at stake, figures pulled from regulatory filings show Tolstedt has at least $17 million in unvested stock that could be vulnerable to clawbacks.
A March proxy statement from Wells Fargo praised Tolstedt for record deposit levels and “continued success in increasing online and mobile banking customers.”