John Stumpf finally fell on his sword yesterday, retiring with immediate effect from the helm of Wells Fargo in the wake of the bank's scandal over creating fake accounts without their consent.
As with Volkswagen in the wake of its diesel scandal, the bank has chosen to appoint a long-time insider, Tim Sloan, to replace the hapless CEO.
The strongest argument in both cases is that, at a time of unprecedented upheaval, knowledge of the institution that needs root-and-branch reform is more important than the taint of association with the past regime.
The strongest argument against it is that it's devilishly hard to dispel suspicion that the incoming CEO, carrying that taint of association, will pursue that reform with the necessary thoroughness, especially if it relates to himself or to those to whom he may owe debts of gratitude. Over a year after Matthias Mueller took over in Wolfsburg, VW still gives the impression of a company inching toward discovery and resolution, one grudging step at a time.
Fortune's Stephen Gandel goes into Sloan's record during the scandal in illuminating detail here.
There will be more forensic autopsies of the scandal in due course. For now, we'll just note with satisfaction that Sloan will not be given the task of supervising himself. Stephen Sanger, the bank's lead independent director, will be taking up the chairman's role. At the risk of inviting the wrath of Jamie Dimon, it's mind-boggling, eight years after the subprime scandal came to a head, that some banks still see fit to combine the roles.
More news below.
• Women Rise up Against Trump
A slew of accusations about Donald Trump’s past behavior towards women buffeted the GOP candidate’s struggling campaign. While Trump’s campaign argues that liberal media, such as the New York Times, are out to get him with smear stories, a striking amount of material comes from the first person: Trump has already admitted deliberately walking in on half-naked beauty pageant contestants, and a new video clip on The Guardian features Trump saying about a 10 year-old girl (seemingly still in earshot) “I’m gonna be dating her in 10 years’ time.” Most strikingly (at least in the eyes of her Time Inc. colleagues), Natasha Stoynoff, who covered Trump for People magazine, has gone public with claims of an assault. As with the women quoted in the NYT story, Stoynoff says it was Trump’s denial on Sunday that he had ever backed up his ‘locker room talk’ with action that was the trigger for her coming forward. People
• Fed Minutes Show Depth of Divide Over Rates
Minutes from the last Federal Open Markets Committee meeting at the Federal Reserve showed a deepening divide between hawks who are afraid that keeping interest rates at their current low level will provoke a leap in inflation at a later date, and the doves, whose main argument is that a jobless rate below 5% is understating the amount of slack left in the labor market (they point to the high numbers of those who are still only in part-time work who would rather be working longer hours). The doves, led by Chairwoman Janet Yellen, still have the majority: three members of the Fed board voted to raise rates in September. Fortune
• Snapchat Hires Goldman, Morgan Stanley to Lead IPO
Messaging service Snapchat hired Morgan Stanley and Goldman Sachs to lead its initial public offering, according to various news reports. The IPO is likely to be one of the highest profile of next year, given the company meteoric rise in the four years since it was founded, albeit the exponential growth in users has been helped by the company’s restraint in monetizing its service. It most recently raised $1.8 billion in May at a valuation of some $20 billion. For Wall Street’s equity capital markets bankers, the IPO can’t come soon enough after an absolutely dismal 2016. IPO volumes for tech companies are down by more than 50% from last year. Fortune
• Chinese Trade Data Revive Growth Fears
China’s yuan fell to a new six-year low against the dollar after data showing that exports fell 10% from a year earlier in September. That more than reversed a pickup in August and revived all the familiar fears about the slowdown in the world’s second-largest economy, which in turn raises fresh doubts about the sustainability of its still-bubbling property market. Imports also fell, by a less dramatic 1.9% on the year. That pushed U.S. crude oil futures back below $50 a barrel, and Asian stocks down to three-week lows. Separately, Deutsche Bank released a report saying it expected the yuan to weaken 17% against the dollar over the next two years due to a divergence in monetary policy (rising U.S. rates and falling Chinese ones). Which raises an interesting question for Deutsche itself: the cash-strapped bank is still trying to repatriate the proceeds of the sale of its stake in Hua Xia bank. Bloomberg
Around the Water Cooler
• Marmitegate – The Brexit Effect on Toast
Here’s the Brexit effect in action: Tesco, the U.K.’s largest supermarket chain, is pulling a load of Unilever products such as Ben & Jerry’s from its shelves and website after the Anglo-Dutch giant’s raised its prices to offset the drop of sterling. Tesco CEO Dave Lewis had warned last week that he was preparing for a fight with suppliers over the issue, resentful that they pocketed the gains when the pound’s strength depressed their input costs. Tesco can hardly afford to risk losing still more customers to the German discounters who have battered it in recent years, but the cost for Unilever of losing its biggest distribution channel in its home market is also significant. Still, it’s an ill wind that blows no-one any good, and at least I won’t have to convulse with dry heaves at the smell of the wife’s Marmite on toast at breakfast… Fortune
• Samsung Scrambles to Contain the Damage
Samsung Electronics is offering financial incentives for customers in South Korea to exchange Galaxy Note 7 smartphones for other Samsung models, the first of what is likely to be a long list of damage limitation exercises worldwide. Samsung slashed its profit forecast by one-third yesterday after failing to resolve overheating problems that caused some phones to ignite. Even physically returning the phones is becoming a problem due to (perhaps over-zealous) carriers requiring the use of fireproof packaging. South Korea’s central bank said the scandal could even affect national GDP growth, such is Samsung’s importance at home. Meanwhile, Fitch Ratings warned that: “Potential long-term brand damage…is a greater threat to its credit profile than the direct financial impact which will be buffered by ample liquidity and a strong balance sheet.” Fortune
• Brooklyn Brewery Ties up With Kirin
Brooklyn Brewery, the biggest craft brewer in New York, has sold a 24.5% stake to Japanese conglomerate Kirin, in a move that should bolster its distribution in Asian markets and also allow Kirin management to think that they aren’t just standing by passively while Asahi snaps up unwanted assets from the AB Inbev/SAB Miller merger. Tradition, and the size of the stake involved, suggest that independence won’t be too much of a problem for the country’s 12th-largest craft brewer. The two said they may develop products specifically for the (shrinking) Japanese market and will also look at pushing further into Brazil. Brooklyn Brewery already has a distribution partnership with Europe in the shape of Carlsberg. Fortune
• It Is You, Babe
Bob Dylan won the Nobel Prize for Literature “for having created new poetic expressions within the great American song tradition.” Sometimes they do get it right. What price Keith Richards getting the prize for chemistry next year?