Name: Here's How the Wells Fargo Scandal Might Change Banking
Uploaded: 2016-09-29
Duration: 5 min 4 s
Description: Fortune and Time editors discuss the ongoing fallout

[ SOUND ] It's not a cost of doing business. This is a serious trust issue with our customer, but I also wanna say there's 268, 000 people who came to work this morning at Wells- Fargo trying to do their very best to serve customers, and they do a Wonderful every day, and I don't want our culture to be defined by these mistakes, and we take accountability for them. I understand that, Mr. Stumpf, but it appears to be a little late, in particularly when you get caught doing it five years ago. You can't doing it once again. Here to talk about the continuing fallout from all of this are Time Assistant Managing Editor Rana Farquhar and Fortune's Associate Editor Ann Vandermay and fielding questions from all of our Facebook users Rafael Garcia. Hi Rafael. We'll be checking in with him throughout the show, so be sure to send your questions and comments in his direction. We want to hear from you. Okay, so, he says it's not about the culture. Rona, the masses, it was a pretty collective agreement that it is the culture and much more than that. But are you surprised that he still has his job? I am actually and it's interesting I think one of the reasons is this has become such a big deal because the losses and comparisons just says it was something like the JP Morgan London while trading scan threw its back on our minor but people can understand this, this isn't something like crazy sprite and ice CDOs they are blowing up, this is Just straight up fraud, just opening up accounts that were phony. Very true. And I think it's, it really has provoked outrage and it's also provoked a sense of awareness that the culture of banking. And I gotta say, not just at Wells is problematic, there's any number of studies to show that the incidents of maleficence are higher in this industry than in many others. That many professional bankers have witnessed Colleagues doing things that are not in the company's best interest, not in client's best interest, so it is a widespread problem. And Ann his reaction is he's basically saying I didn't know about this, this was rouge employees that were not following the rules. But come on, I mean and number one that's not an excuse if you don't know that's just as bad And he's saying he had nothing to do with even the compensation, but he's the chairman of the board. So what do you make of all that? First of all, you can't have 5, 300 rogue employees. [ LAUGH ] That's crazy. Statistically impossible. Yeah, he said in the video that he didn't want this to define his culture, but it certainly already has defined the culture. Yeah, So I think when you have these kinds of compensation things in place for employees, they react in response to that. You saw that on the ground with employees opening these false accounts to get that little bit of kick back. And I think You know, because, he is the chairman of the board he has you know, he has all the power. It's insane to sort of pass the book like that. Okay, we're gonna go to Rafael for a minute cuz, I think he has a question related to this. Rafael what do you have for us? Yes, so obviously a lot of people are so pissed off about this. So, people are saying what's gonna happened next to the bank. Where was the board during all of this This. That's a great question. I mean, and you brought up the board. But Rhonda, is there a serious board issues here, is this? Huge, huge, I mean, this is absolute absence of corporate governance. And I think it also underscores something that a lot of banks are facing, which is real pressure for profit margins right now. So if you look at the last eight years A lot of money has gone out of trading because of Dodd- Frank. It's gotten tougher to make a profit in that business. Banks that were once making double- digit profits have gone down to single. There is pressure on the boards, too, as there is on all [ UNKNOWN ] folks to make those quarterly profits. And so I think that this is happening in the consumer division and maybe people were sort of turning a blind eye to this reflects that profit share / g .>> And he's chairman of the board and CEO. Does that pose a problem? Many banking CEOs do also hold the chairman spot. Jamie Diamond being a good example .>> I think it does and I think you've seen Trend away from it ten years ago in the United States this was really common that the same person would hold the CEO spot and the Chairman spot. Now it's much less common. You're saying it's kind of falling out of favor. And that is because long term shareholders don't make as much money when the roles are combined. And it costs companies more. You'd think it would cost less to pay one person to do both jobs. It actually ends up costing more .>> Interesting. Ranna Jenna Illin testified in front of the Senate Banking Committee this week and she was asked why don't you just. How come you haven't caught Wells Fargo why don't you break them up. I mean that's not really her job. Well it's interesting. The fed does have a role as a regulator and I spoke to Danielle several months ago and actually she said this was an area she was planning on focussing on so. I think that this was already coming. I think she said that there's gonna be a close look at how these institutions are run. They're also talking about upping capital requirements on the banks. They're already having to hold a lot more capital than they did. That's one of the reasons that their profitability is down. That's probably gonna be coming. I think the bottom line in all of this is that banks are gonna start to look much more like utilities than they did 10, 20 years ago. And as you said, Stumpf is gonna lose his job we think. I would be surprised if he comes out of this unscathed. 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Fortune and Time editors discuss the ongoing fallout