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Wells Fargo apology has no meat, but CEO should stay, analyst Mike Mayo says

CLSA's Michael Mayo ripped into Wells Fargo CEO John Stumpf's planned apology on Capitol Hill — literally. The bank analyst tore up a copy of a list of the issues during an interview on CNBC's "Squawk Box."

The scripted apology fails to answer important questions about the bank's fake accounts scandal, Mayo said Tuesday.

Stumpf will answer questions before the Senate Banking Committee on Tuesday following the revelation that Wells Fargo employees opened as many as 2 million accounts on behalf of customers without their consent, resulting in a $185 million fine from regulators including the Consumer Financial Protection Bureau.

Stumpf is planning to apologize and take full responsibility, according to prepared remarks. But the statement fails to address why it took Wells Fargo so long to halt the behavior, where the checks and balances were applied, and what the repercussions will be for executives, Mayo said.

"Where's the rest? Where's the meat?" he asked. "It doesn't really say anything. It doesn't answer the questions that he's going to be grilled on today."

Mayo said the company should claw back pay for Stumpf and Carrie Tolstedt, the head of community banking who is scheduled to retire at year's end. Still, Stumpf should stay on as chief executive, he added.

The bank remains a well-managed enterprise and has outperformed its peers in recent years under Stumpf, according to Mayo. After speaking to Wells Fargo customers, Mayo said he is convinced they will not leave the bank. CLSA has left its earnings estimates for the company unchanged, he added.

"As far as a financial event, it's not a big deal," he said, though he acknowledged it is a significant public relations setback.

Former General Electric Chairman and CEO Jack Welch also said the case was not significant from a financial perspective. But he added there is no question Wells Fargo did not act swiftly enough and suffered a breakdown in culture that put pressure on employees to sell more products and incentivized bad behavior.

"You get the behavior you measure and reward. That's just a fact," he told "Squawk Box" on Tuesday. "If you want more accounts, you put some weight on that, but you put more weight on customer satisfaction, customer growth."

Wells Fargo fired about 5,300 employees who were believed to have been involved in the practice during the last several years. Last week, the bank said it will eliminate its product sales goals for retail bankers.


The scandal is a serious issue for stockholders, said Christopher Whalen, senior managing director of the financial institutions rating group at Kroll Bond Rating Agency. He noted that Wells Fargo has demanded a premium valuation because the bank, known for its aggressive pursuit of sales and earnings, has been able to deliver returns.

"If they have to change their internal culture, then I think that's going to have a ripple effect that's going to definitely affect the equity investors," he told CNBC's "Worldwide Exchange" on Tuesday.

Wells Fargo stock plunged after the scandal unfolded, with JPMorgan Chase replacing it as the largest publicly traded bank by market capitalization. In early trading Tuesday, Wells Fargo's stock price was up 2 percent.

Further, the issue raises questions about Wells Fargo's risk management, Whalen said. That responsibility ultimately lies with Stumpf and the company's top executives, who must certify each year that the bank's internal systems and controls are sufficient, he added.

Whalen said Stumpf is in a tight spot because he either knew about the fake accounts and didn't take effective action, or did not know the extent of the problem, neither of which is acceptable.

"When you go back and you look at the fact they were not able to deal with this in a timely way, even up until the present day, that's a big deal," he said.

Wells Fargo declined to comment for this article.

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