March 29, 2019
By Imani Moise
(Reuters) – Wells Fargo & Co’s plans to bring in an outsider as its next chief executive could give the scandal-plagued bank a much needed fresh start, but a turnaround will not be easy for whoever takes the helm, analysts said.
The fourth-largest U.S. bank by assets said on Thursday that CEO Tim Sloan, a 31-year Wells Fargo veteran, would resign immediately and a committee would meet on Friday to start looking for a replacement from outside the bank.
More than two years after its wide-ranging sales practices scandal first came to light, Wells Fargo is still struggling to repair its reputation and relationship with U.S. regulators.
“Reforming decades of past mistakes at an institution as large as Wells is a difficult and time-consuming endeavor,” said Morningstar analyst Eric Compton in a note on Friday.
It remains unclear what exactly triggered Sloan’s abrupt departure. Sloan, who had been CEO since predecessor John Stumpf left the bank soon after the scandal erupted in 2016, said he made the decision because the focus on him had become a distraction and a hurdle to helping the bank recover.
Critics had accused Sloan, who was part of the management team while the wrongdoing was happening, of being too entrenched in Wells Fargo’s culture to change it.
Wells Fargo Board Chair Betsy Duke did not give clear guidelines on what kinds of candidates the board is looking for.
The next CEO will likely be a finance executive with experience with consumer banking and digital strategy, analysts said. But it will also be important to find someone who can soothe Wells Fargo’s strained relationships with U.S. regulators and politicians, they added.
Admissions by the bank that it opened potentially millions of unauthorized accounts and improperly charged customers for services have resulted in billions of dollars in fines and settlements since 2016.
The Fed has also placed an unprecedented restriction on Wells Fargo to keep it from growing its balance sheet until it proves risk management controls are improved.
“It does seem that Wells Fargo management has lost the confidence of regulators,” Minneapolis Federal Reserve President Neel Kashkari told Reuters on Friday. “It will be important to put in a CEO that can regain that confidence.”
Sloan had told analysts in January that he expected the bank to operate under the cap through 2019. Wells Fargo executives did not provide new information about when they expected the Fed to lift the asset cap on Thursday.
Analysts, however, now expect that the bank will need longer than its latest estimate before the Fed removes the restriction.
“We do not expect the asset cap to get lifted until mid-2020,” said Citigroup Inc’ analyst Keith Horowitz in a note on Thursday.
KBW’S Brian Kleinhanzl also wrote in a note that the bank seems to be far from convincing the Fed that it has made sufficient changes.
To help alleviate the impact of the asset cap, Wells Fargo has been offloading parts of its business. It has already sold 52 Midwestern branches and its Puerto Rico auto finance business, and it is in advanced talks to divest its retirement plan services business.
(Reporting by Imani Moise. Additional reporting by Elizabeth Dilts and David Henry; Editing Anna Irrera and Meredith Mazzilli)