Thursday the CEO of embattled banking giant Wells Fargo (NYSE: WFC) announced his immediate retirement. This comes after it was uncovered that the bank had employees that were opening unauthorized accounts in customers names and then transferring money from existing accounts into the new ones. As the CEO leaves, the prior COO in charge has stepped up to the plate to try and right the ship.
Why has this been such a big deal? Well the answer is (was) honesty. Companies make mistakes, we all are aware of this. When a company makes a mistake, history says the best course of action is to announce the mistake on your terms and go over and above to make it right by the client. In Wells' case they had to be sued by California to even make public the claim. They repeatedly brushed aside the issue as if it had never happened.
The next reason this is such a big deal is that the CEO spoke before congress and tried to claim that this was all due to some "rouge employees". He was very quickly put in his place and reminded that over 5300 employees took part in the fraudulent account process. Over 5% of the employees that were eligible to open accounts in such a manner did. Again, this was another attempt by the company to try and minimize the issue.
Because of the repeated attempts to hide the truth, or try and soften the real activity the stock price has taken a pretty good hit. Since the beginning of September the stock has lost over 12% almost in a straight line down. The street saw right through the lies and mis-truths. Now, that's 12% that Wells couldn't afford to give up. The stock was already down for the year and now posts over a 17% decline for 2016.
So where does the company go from here? Well the CEO is out and he had to forfeit his retirement and severance deal (stock included) totaling over $41 million. The company has fired all 5300 employees that participated in this mess and vows to pay damages to the over 2 million customers affected.
As for the stock, this appears to be a temporary black eye on a stock in a sector that many are slowly becoming more optimistic about. With the belief that interest rates will be higher soon, banks stand to gain from that. Time will tell how Wells Fargo does with this in the long term.