Saturday, September 17, 2016
Too big to give a damn
There is a reason that liberal Democrat Elizabeth Warren was elected Senator from Massachusetts, and liberal Independent Bernie Sanders came thaaaat close to being the Democratic nominee for President. That reason is they exposed the massive hanky-panky going on in America's corporate suites, and it struck a nerve with voters. Here's the latest scam just made public:
Wells Fargo Bank, considered by many investors to be the Gold Standard for banks *a rather low bar* because of their great management, was fined $185,000,000 by the Federales for securities fraud. It seems Wells Fargo regional managers gave their branch offices daily quotas to “cross-sell” financial products to existing customers. If someone had a checking account, they would sign them up for a savings account. Or a credit or debit card. Or online banking services. Former CEO Dick Kovacevich invented this target for each customer, calling it the “Gr-eight initiative” — eight add-on products per household.
When some employees couldn't meet their quota, they would just forge signatures and open up accounts without their customer's knowledge or approval. These 1.5M unauthorized accounts only netted Wells Fargo about $2.5M, so the $185M fine might seem rather punitive, right?
Umm, no. Here was the real scam: Wells Fargo constantly bragged in its earnings statements that their "cross-sell results are proof of their superior customer satisfaction." Investors loved it, thinking the sky was the limit. Yeah, right. (The average Wells Fargo retail banking customer had 6.11 products by the end of 2015.)
The fake accounts goosed the stock price....Wells Fargo stock doubled from 2011 to mid-August 2015, the period described in the fraud complaint. And just coincidentally, John Stumpf, the CEO of Wells, received $155M in stock options between 2012 and 2015 as the share price soared, in part based on the successful cross-selling strategy. (This is why it was "securities fraud" and not simple "consumer fraud". The investors, not consumers, were the big losers.)
Wanna give 'ol Liz and Bernie heartburn? Remind them that the executive who oversaw the WF banking unit the entire time those millions of fake accounts were opened is now “retiring” with a $124.6M Golden Parachute, and the 5000 employees who did bad were fired. Sound fair to you?
I'm a staunch capitalist. I believe those who work the hardest and come up with the best ideas benefiting both investors and consumers should do very well. When Fred Smith turned his doctoral project into the reality we know today as FedEx, I think he deserved to get filthy rich. When Steve Jobs and friends invented a revolutionary new iWorld, I think they deserved to get filthy rich. The same for Bill Gates and Jeff Bezos and a few others, too.
But the financial services industry has proven time and again they are all about smoke and mirrors, and little else. They seem to be masters of just fleecing those who actually do contribute to the creation of real wealth. They deserve our contempt. Liz and Bernie just saw the truth before most of the rest of us did.