Wells Fargo CEO Tim Sloan is retiring, and shares jump

Key Points
  • Tim Sloan is resigning as CEO immediately after 31 years at Wells Fargo, the bank said Thursday in a release.
  • The bank's general counsel, Allen Parker, will take over as interim CEO, and the bank is searching externally for a permanent successor.
  • The move came suddenly: Wells Fargo had just awarded Sloan a raise and defended him against reports that his board was interviewing successors.
Jim Cramer on what's behind Wells Fargo CEO Tim Sloan's retirement

The embattled CEO of Wells Fargo is stepping down.

Tim Sloan, who took over as chief executive of the bank in October 2016, is resigning as CEO immediately, the bank said Thursday in a release. The bank's general counsel, Allen Parker, will take over as interim CEO, and the bank is searching externally for a permanent successor.

Sloan, the three-decade Wells Fargo veteran who was supposed to clean up the mess that had claimed his predecessor, had struggled to satisfy regulators' demands to overhaul the sprawling institution.

Problems at the fourth biggest U.S. bank came to light in 2016 with the news that employees had created millions of fake accounts to meet sales quotas. Since then, more issues tied to sales practices have emerged across the bank's business lines, including mortgage, auto lending and wealth management operations. Last year, the Federal Reserve took the extremely rare step of capping the bank's asset growth after the bank found more problems with customer dealings.

Tim Sloan, CEO of Wells Fargo
Adam Jeffery | CNBC

Still, the news that Sloan was stepping down came suddenly.

Earlier this month, the bank said that Sloan had merited a 5 percent raise to $18.4 million for his work in 2018. And when there were news reports that the bank was considering a former Goldman Sachs executive as a potential CEO, the bank issued strong statements that Sloan had the full confidence of its board.

Just two weeks ago, a haggard-looking Sloan testified before Congress about his efforts to clean up the various messes he had inherited. Before the four-hour hearings began, CNBC's Ylan Mui asked Sloan how long he expected to remain CEO, and he replied that he, his board and all of his 260,000 employees thought he was doing a great job.

But in the end, the pressure was just too great.

Sloan informed the board Tuesday that he felt his presence was a hindrance for the company, according to a Thursday call conference call with reporters. The move wasn't the result of the banks first-quarter performance or any "newly discovered issues," he said. 

Sloan's departure reflects "his belief that a new CEO at this time will best position the company for success," the bank's chair, Betsy Duke said in a statement.

Rather than look for a replacement internally, the board said it would find one from outside the company. The  bank's critics, including Sen. Elizabeth Warren, have said that Sloan was too associated with the bank to be an effective change agent.

Wells Fargo shares jumped 2.6 percent in extended trading Thursday following the announcement.

Shares of the bank have struggled amid the fallout from the sales practices scandal and scrutiny from political leaders. Over the last five years, the stock is flat, compared to a near 70 percent jump in J.P. Morgan Chase shares and a 40 percent move higher for the whole S&P financial sector.

Sloan's departure follows repeated calls from lawmakers for the CEO to step down. In October, Sen. Warren sent a letter to Federal Reserve Chairman Jerome Powell calling on the Fed to maintain its growth cap on Wells Fargo until the bank replaces Sloan.

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Sloan blew past his initial estimate for when the bank could grow again, saying that the Fed restriction will remain in place until the end of 2019 in Wells Fargo's most recent earnings report.

Late last year, after announcing that he was cutting up to 10 percent of the bank's workforce, the 58-year old Sloan told Bloomberg that he was prepared to remain CEO until he reached the age of 65.

When asked Thursday whether he supported Sloan, Berkshire Hathaway CEO Warren Buffett told CNBC's Becky Quick "yes, 100 percent." Buffett said that's because he doesn't want the job. Berkshire Hathaway is Wells Fargo's biggest shareholder, with more than 9 percent of shares according to FactSet.

More than two decades ago, Buffett stepped in to help temporarily lead a beleaguered Salomon Brothers after a scandal. Sloan was named CEO shortly after Wells Fargo's sales practices scandal came to light in 2016.

"I'm very empathetic when he walks into a big problem at a very very large and politically sensitive institution," Buffett said.

Others were less charitable. Sen. Warren, who is running for president in the 2020 election, tweeted that Sloan shouldn't get a golden parachute of compensation as he departs.

"He should be investigated by the SEC and DOJ for his role in all the Wells Fargo scams," she said. "And if he's guilty of any crimes, he should be put in jail like anyone else."