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The Case Of The 'Clawback': What's Next For The Wells Fargo Board


The board of Wells Fargo is rescinding $41 million of compensation for CEO John Stumpf. It's a move known as a clawback. The prospect of clawbacks was raised last week at a Senate hearing about Wells Fargo's sales scandal. Employees opened up as many as 2 million unauthorized accounts for customers without their knowledge.

To talk about clawbacks and how they're used, we're joined now by Richard Bove of Rafferty Capital Markets. Welcome to the program.

RICHARD BOVE: Thank you.

SIEGEL: Wells Fargo is paying $185 million fine for those practices. The bank fired 5,300 employees, and senators were enraged by the fact that no one at the top had been punished. Was a $41 million clawback a suitable response by the bank?

BOVE: Well, I think that the bank is approaching this thing on a gradualism approach. In other words, it wants to take as little as possible until someone tells it it has to take more.

SIEGEL: This would be presumably $41 million worth of stock options that Mr. Stumpf has been given but he obviously hasn't exercised yet.

BOVE: That's my understanding.

SIEGEL: And as a share of his compensation as being CEO of a big bank, how does 41 million in stock options rank?

BOVE: Well, it's pretty significant. It's about one third of the profits that he's made, we'll say, from his position at Wells, so it's not an insignificant amount of money. Amazingly, bank presidents just don't make as much money as baseball players.

At one point I compare the salaries of the four, if you will, CEOs of the largest banks in the United States to the infield of the New York Yankees, and the New York Yankees infield actually made more.

SIEGEL: Well, was Jeter at short and Rodriguez at third at the time that you made that comparison?

BOVE: (Laughter) Yes, yes they were. Yes they were.

SIEGEL: That was an unusual infield that you were comparing it to. Do you think that the message here - you say that Wells Fargo is responding, doing what it feels obliged to do and seeing if that's enough. Does it drive home some point about accountability and what CEOs are supposed to be doing about their banks' practices?

BOVE: Yeah, and I think it's totally appropriate. In other words, we're in a situation where what Wells Fargo did was totally unacceptable at every level. And what is really harmful about what they did is that it's going to set off another witch hunt in banking which is going to harm, in my view, the economy and people across the United States.

SIEGEL: When you use the word witch hunt, it sounds as though you assume that what was being done at Wells Fargo was egregious and unlike anything else going on any other any other bank.

BOVE: Yeah, well, to my knowledge, every bank in the United States uses cross-selling techniques. I mean if you walk into Macy's and you buy a suit, they're going to tell you this tie looks good with it. If you walk into McDonald's, they're going to say, do you want some fries with that order? Cross-selling is, you know, a normal portion of the way things are sold. It's the method...


BOVE: ...In which they're sold that's the problem here.

SIEGEL: But Macy's just doesn't throw a tie in and charge me for it. I mean they tell me about what's going on. That wasn't clear in this case.

BOVE: Yeah, no, I mean I think that what Wells Fargo did here is unbelievably unacceptable. I think that executives should be held accountable. I think that firings and pay clawbacks are all in the realm of what should happen here. But you know, that's a Wells Fargo situation.

What is now going to happen is the Consumer Financial Protection Bureau is going to bore into every bank in the country. And we've seen events that are going to affect the way Congress looks at the Hensarling bill which is supposedly going to restructure Dodd-Frank. So this thing has impacts which are significant well beyond what Wells Fargo did.

SIEGEL: Richard Bove, thank you very much for talking with us about it.

BOVE: Thank you.

SIEGEL: Mr. Bove is vice president of equity research at Rafferty Capital Markets. Transcript provided by NPR, Copyright NPR.