So I really wanted to share this yesterday, because yesterday, it was still current:

But I’m sharing it anyway. Because even if it’s no longer current, it’s a takedown – and who doesn’t enjoy a little bit of political evisceration*?
*At one point, Elizabeth Warren actually refers to Mr Stumpf as ‘gutless’. I mean, if you’ve just disemboweled the man, then ‘gutless’ is a bit on the nose, don’t you think?

The Wells Fargo Story though…

…is really just a mild case of badly-designed performance incentives.

Here are the key headline phrases:

  1. 2 million fake accounts and credit cards
  2. 5,300 employees fired
  3. $185 million in fines.

But when you actually start sifting through the story, and discarding all the inflammation and rhetoric, then it starts to feel surreal. There’s a lot of flaying going on for what doesn’t really appear to be too much sin.

So here is what seems to be the story:

Step 1: Mr Stumpf likes Cross-Selling

Wells Fargo is famous for getting its customers to have more than just one bank account. According to their 2015 Annual Report, the average retail customer at Wells Fargo had 6.11 products with the bank. Here’s a quote from an LA Times article in 2013:

“Wells Fargo & Co. is the nation’s leader in selling add-on services to its customers. The giant San Francisco bank brags in earnings reports of its prowess in “cross-selling” financial products…”

And the market loves it when a customer has multiple products with a bank – it means that those customers are highly unlikely to leave, because it would be too much of a hack.

For example, I am almost indefinitely tied to FNB. Here are all the banking products that I have with them:

  • My personal cheque account
  • Internet banking
  • My credit card
  • Cellphone banking (including the iPhone app)
  • A savings pocket account
  • An Ebucks reward card.

And just like that, I’m already up to six products.

I may have started with only that one cheque account – but I’ve been cross-sold the other five, with every likelihood of having that grow in the future. All I’d need is a mortgage, a car financing arrangement, a dollar-denominated offshore account on the Isle of Man, a general loan facility, a share saver account for the occasional stock market dabble, and a fixed deposit account to round myself up to a neat dozen of banking products.

At which point, I almost dare myself to move after an altercation with the Call Centre. It just won’t happen. FNB will be taking my banking charges until long after I’m a deceased estate.

Step 2: Well, in that case…

Wells Fargo decided to put in place sales incentives for its staff to get them to cross-sell stuff. Because if cross-selling means that you get to retain your customers until death do they at last part from you, then why not make that happen?

Unfortunately, this is the kind of thing that can get well away from one. Especially if one is inclined to pull sales goals out of thin air. Here is my favourite quote (from Matt Levine) from this whole saga:

Oh and by the way, here’s Chief Executive Officer John Stumpf’s answer to the question “Where are you getting these sales goals?”

In the 2010 annual report, Mr. Stumpf said he often was asked why Wells Fargo had set a cross-selling goal of eight. “The answer is, it rhymed with ‘great,’ he wrote. “Perhaps our new cheer should be: ‘Let’s go again, for ten!’

That’s a goal of eight products per customer. A goal chosen not based on an analysis of market demand or customer needs or branch traffic or average employee productivity, but based on rhyme. My advice would have been: Stick with three, avoid trouble with the CFPB. Or maybe four, which won’t trouble a prosecutor. Even at five, the program might survive. At six, it gets harder to fix. By seven, fake accounts are a given. Eight turned out not to be great. If they’d gone for nine, there’d have been a bigger fine. Can I be a bank CEO now?

In a nutshell though: some thoughtlessly high sales targets were set, and bank tellers were basically told that they’d be fired if they didn’t hit them.

Step 3: How To Meet An Unachievable Sales Target

Short answer: you lie.

Let’s go back to that 2013 LA times article:

“To meet quotas, employees have opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged client signatures on paperwork. Some employees begged family members to open ghost accounts.”

Three years on, here’s what the Consumer Protection Finance Bureau (CPFB) said in their eventual findings report:

The Consumer Financial Protection Bureau has reviewed the sales practices of Wells Fargo Bank, N.A. and determined that it has engaged in the following acts and practices: (1) opened unauthorized deposit accounts for existing customers and transferred funds to those accounts from their owners’ other accounts, all without their customers’ knowledge or consent; (2) submitted applications for credit cards in consumers’ names using consumers’ information without their knowledge or consent; (3) enrolled consumers in online- banking services that they did not request; and (4) ordered and activated debit cards using consumers’ information without their knowledge or consent.

And because opening fake bank accounts is just as likely to get you fired as not meeting your sales target, around 5,300 people lost their jobs for doing so.

At this point, perhaps things sound pernicious and dastardly #evilbank #evilbankers #evilevilevil

But here’s the actual financial fallout for customers:

  1. Of the 1,534,280 fake deposit accounts that were opened, 95% of them incurred absolutely no fees at all.
  2. Of the 85,000 or so accounts that did incur fees, each was billed (on average) $23.50 over the entire 4 year period that everyone is talking about.
  3. Those fees are all being refunded.
  4. Of the 565,443 unauthorised credit cards that were created, 98% of them incurred absolutely no fees at all.
  5. Of the 14,000 or so credit cards that did incur fees, each was billed (on average) $29.00 over the entire 4 year period that everyone is talking about.
  6. Those fees are also all being refunded.
  7. The online banking services and debit cards were free.

Clearly, we are not talking big money here. As in: Wells Fargo would have been ridiculously dumb for actually wanting their staff to open up fake bank accounts.

I mean, yes, the bank undoubtably made a lot of money off all the legitimate cross-selling that took place. But still – I’m not sure we can accuse them of somehow scheming to get their employees to create fake accounts for their customers.

Of course, what I can definitely understand is how this election season is a great time for politicians to try and deflect the general anti-establishment anger towards cushily-paid banking executives who line their pockets while forcing the poor middle class to fraudulently create bank accounts…

Perhaps that makes me a cynic.


Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at