Wednesday, February 4, 2009

Wells Fargo's Happy Face Turns Grim

Wells Fargo Bank has a prestigious reputation as the best managed financial institution in America and yet its chief executives still don't get it.

The bank Tuesday cancelled a celebration bash in Las Vegas to honor and award its mortgage brokers after a backlash of the news ripped through the business media and halls of Congress.

Wells Fargo was one of eight major banks receiving Troubled Asset Relief Program funds from Congress in October. The $25 billion it reluctantly received was used in part to buy Wachovia. This Monday Wells Fargo was the first bank reporting a quarterly first installment of $371.5 million payback to the U.S. Treasury.

That happy face lasted less than 24 hours when news of the Las Vegas junket was reported. Bank executives woefully underestimated the resentment of taxpayers believing they were paying the bills to wine, dine, entertain and bestow gifts on mortgage lenders who corruptly contributed to the financial sector meltdown. That is the perceived bad rap that Wells Fargo probably does not deserve but remains a true picture of the times we are experiencing.

Wells Fargo's response:

"Today’s Associated Press story about Wells Fargo’s recognition events is intentionally misleading. The event is not a “junket” for executives but a four-day business meeting and recognition event for hard-working team members who made home ownership achievable and sustainable for borrowers across the nation. In 2008 alone, the team members who were invited to this event and their colleagues produced $230 billion in mortgage loans for U.S. homeowners.

"Through all economic cycles, our recognition events have been an important part of our company’s culture. Late last year, we cancelled recognition events for 2009 except those where the financial commitment was so great that no meaningful savings would occur by cancelling these events. We had scaled back the mortgage event, but in light of the current environment, we have now decided to cancel this event as well. We do not plan to have any other recognition events this year.

"The Associated Press story also misleads readers by implying Wells Fargo used the government’s investment to pay for these events. As we’ve said before, we’ve used the government’s investment to lend to creditworthy customers and to help homeowners avoid foreclosure. Since credit began contracting 18 months ago, Wells Fargo has made almost half a trillion dollars in new loan commitments and mortgage originations. Last quarter alone, we made $22 billion in loan commitments and $50 billion in mortgage originations. That’s more than $70 billion or almost three times the amount of the U.S. Treasury’s investment..."

Despite what Wells Fargo reports, there are some troubling questions remaining to its overall financial health. The bank is expected to report a $2.3 billion loss for the last three months of 2008. That reflects the bad loans remaining on its books in the mark-to-mark accounting system imposed on banks by regulators.

Also questionable is the value Wells Fargo established on its preferred stock of 25,000 shares Treasury purchased through TARP. It is unclear what price the government paid but the bank Monday said each share now is valued at $14,861 which seems artificially high to some observers.

The public and Congress is in no mood for corporate junkets, a tradition in the industry. President Obama announced today he wants financial executive pay capped at $500,000 annually before the second half of the $350 billion remaining TARP funds are disbursed.

Whatever its intentions, Wells Fargo may be the last TARP recipient rewarding its top employees. Initially, the company indicated it had no plans to cancel.

"Recognition events are still part of our culture," WFB spokeswoman Melissa Murray said Tuesday afternoon. "It's really important that our team members are still valued and recognized."

In previous years, top Wells Fargo loan officers were treated to performances by Cher, Jay Leno and Huey Lewis. One year, the company provided fortune tellers and offered camel rides, said Debra Rickard, a former Wells Fargo mortgage employee from Colorado who attended the events regularly until she left the company in 2004.

Every night when employees returned to their rooms, there was a new gift on their pillows, she said. "I was amazed with just how lavish it was," Rickard said. "We stayed in top hotels, the entertainment was just unbelievable, and there were awards — you got plaques or trophies."

Kevin Waetke, another spokesman for Wells Fargo, said the Las Vegas trip provided a "unique opportunity" for Wells Fargo employees and employees of newly acquired bank Wachovia Corp., "to focus on continuing to do all we can for U.S. homeowners."

On Capitol Hill, lawmakers disagreed.

"Let's get this straight: These guys are going to Vegas to roll the dice on the taxpayer dime?" said Rep. Shelley Moore Capito, a West Virginia Republican who sits on the House Financial Services Committee. "They're tone deaf. It's outrageous."

"Now, they're sending employees on junkets to Las Vegas. You do the math," said New York Attorney General Andrew Cuomo, who recently sought information about Wells Fargo's bonuses as part of his investigation into the banking industry.

These politicians are grandstanding, no doubt. Their statements are based on perception and, in Wells Fargo's case, on misrepresentation of facts.

That's the climate we live in. Get use to it, Mr. Bank man.


LJR said...

The beautiful thing about allegations that Wells Fargo has engaged in abuses of tax payer bailout funds is just how wrong the media, and our politicians, understand the facts. Grandstanding is what we have here, nothing less. Let see. The "source" for the excesses is an employee that last worked at the bank in 2004. Let's see, she no doubt was answering reporters' questions. What were the questions? We'll never know.

The fact is that as reported by the bank, these annual celebratory events are not "junkets" for senior management. Rather, they are a means to acknowledge the contribution of the grass roots players that make Wells Fargo the bank it is, a preeminent sales organization. Yes, big producers are in the mix, but they can change every year depending upon their results. More important are employees being recognized for their customer service, both internally and externally. These are what Obama would characterize as "main street." These are people that have to work for a living. I know, because I've had a number of my staff attend these functions. When these attendees are debriefed after the fete, they don't remark about how lavish they are. Rather, they remark about how good it made them feel for the job they did. It's all about recognition. Excesses? Never mentioned. Being made to feel good about their achievement? Absolutely.

As noted by the Remmers blog, Wells Fargo paid it's first dividend in the amount of $371MM. Isn't that living up to its obligations? Let's cut some slack here. When we stop being able to differentiate between greed (Wall Street investment bankers) and rewards (Main Street employees being rewarded for exemplary sales and service), we've essentially allowed mob rule (re: thinking) prevail. Where's the justice in that?

Wells Fargo CEO John Stumpf said...

Wells Fargo thanks team members in full-page ads in national newspapers

A full-page letter from President and CEO John Stumpf appeared in the Sunday editions of The New York Times and The Washington Post, and today’s editions of The Wall Street Journal and USA Today (see attachment). In the letter, Stumpf explains why team member recognition is so important to the company’s success, thanks team members for their work, and tells all our stakeholders how much the company values all its team members.

The letter says:

“Okay, time out,” says Stumpf. “Something doesn’t feel right.

Everyone agrees that in this economic environment, all employers should re-examine how much they spend on recognition events for their employees. Especially publicly-traded companies owned by their shareholders. Especially institutions that received investments from U.S. taxpayers through the U.S. Treasury’s Capital Purchase Program.

The problem is many media stories on this subject have been deliberately misleading. These one-sided stories lead you to believe every employee recognition event is a junket, a boondoggle, a waste or that it’s for highly-paid executives. Nonsense! Because of the misperceptions these stories have created, Wells Fargo has decided to cancel all its major annual recognition events for its team members for the rest of this year.

So who gets hurt when this happens? The Wells Fargo team members across America who are most deserving of recognition and our gratitude. Tellers. Personal bankers. Phone bankers. Financial advisors. Mortgage salespeople and processors. Operations clerks. Technology specialists. Credit analysts. All of those who make it possible for our customers to save, invest, own homes, and build businesses that create jobs – team members who enabled us to make more than a half trillion dollars in new loan commitments and mortgage originations in the last year and a half. These team members work long hours to support their families and to make sure we give our customers the very best service we can possibly give.

Annually for the past 20 years we’ve recognized our top team members from various businesses at several special four-day events, like the one we had planned for our terrific mortgage team who helped us originate $230 billion in mortgages the last year. For many, it’s the only time in their lives that they’re publicly recognized and thanked for a job well done. This recognition energizes them. It inspires them and their team members to want to create an even better experience for our customers. Another annual event – which our top performers in community banking all had looked forward to – was to have been held in May. But not this year. Who loses besides our team members? The workers who depend on our business. The hospitality industry. Hotel housekeepers. Restaurant servers. The airlines.

The funds to pay for recognition events such as these do not come from the government. They come from our profits. We believe our profits actually increase by rewarding and recognizing our best performers in sales and in service. Competition to be recognized inspires everyone to work harder and smarter. We’re as frugal as any company in spending our shareholders’ money thoughtfully and responsibly. Events such as this are the heart of our culture because our product is service, delivered by caring, energized, talented, loyal team members who earn competitive, fair wages and benefits.

We just hope the hard-working people of America understand, appreciate and support employers who try to do the right thing for their team members, customers, communities, and shareholders.

Since we aren’t thanking our award-winners in person this year we’ll have to do it this way. Thank you all our 281,000 team members.”

You are the best!

John Stumpf

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