It was four years ago that Wells Fargo admitted creating fake customer accounts to hit sky-high sales goals and almost everyone tied to the bank has paid a price since then.
Millions of customers were likely saddled with bogus accounts while investors coughed up billions in would-be profits to pay for the bank’s sins. Thousands of Wells Fargo employees were fired over the years and two chief executives have been tossed out on their ears.
But one man at the center of the scandal – former CEO Dick Kovacevich who conceived the sales goals that spawned Wells Fargo’s poisoned culture – has not paid a penny and never answered for his role.
In fact, Kovacevich still has a place at the bank and he says he recently fielded phone calls from Wells Fargo clients upset they could not tap the Paycheck Protection Program (PPP) meant to aid small businesses. “For about three weeks it was inundated,” Kovacevich said about his workload as a Wells Fargo ambassador – a job that comes with an office and personal assistant paid for by the bank.
The fact that Kovacevich still has a role at the bank a decade after he ostensibly retired as chairman says a lot about his outsized role shaping a culture that sold – and sold and sold – financial products.
We spoke at length with Kovacevich on the latest episode of The FinReg Pod about his career and how things went so wrong at Wells Fargo. Our ninety-minute chat began with a whirlwind journey through decades of banking deregulation and ended with an emphatic self-exoneration.
Kovacevich was often charming, cogent, and measured. He was also impassioned, indignant, and angry. The former CEO has never before discussed the scandal so openly.
Kovacevich explained how he has been helping erase banking rules since President Carter and in that time he argued that modern banks should be financial superstores that peddle credit cards and other products that generate profitable fees.
How many accounts should you have? Kovacevich said eight. Or Grrrr-eight! That was the goal Kovacevich set at Wells Fargo but was it intrinsically meaningful? “Well, it wasn’t,” Kovacevich told us.
The Kovacevich model ended in disgrace but it began as an ordinary corporate ambition: to grow market share. For Kovacevich, that meant Wells Fargo customers should only ever bank with Wells Fargo and employees who could not achieve that goal had failed. At an all-managers meeting in Las Vegas in 2002, Kovacevich noted “disappointing results” in that workers were falling short in selling a bundle of personal accounts known as “the pack”. “I would like to understand from you why we aren’t doing better selling packs to every, 100%, of new customers,” he said, according to a copy of the speech Kovacevich shared.
Could it be that Kovacevich’s goals were so absurdly out of reach that some workers created fake accounts just to avoid getting fired? Impossible, Kovacevich said, in a layered explanation that went on for several minutes. Nope. Kovacevich insists that Wells Fargo’s business practices were fundamentally sound.
In the bland jargon of Wells Fargo, it all started with employees doing what’s termed a ‘cross-sell.’ They encouraged customers already banking with Wells Fargo to do a lot more. If a customer had a savings account, why not get a credit card? If they had a mortgage, why not open a line of credit? Anyone who has entered a fast food joint for a burger and left also carrying fries and a milkshake has succumbed to a version of a cross-sell. It’s arguably the most basic maneuver in salesmanship, deployed equally at your local jeweler and the bazaars of Marrakech. An able salesman can delude the customer into believing – for a brief moment, anyway – that they wanted this all along.
It drove Kovacevich nuts that a Wells Fargo customer would go anywhere but Wells Fargo for a mortgage or credit card when all those products were offered by the bank. “It’s not about checking accounts and loans – it’s about our total share of a customer’s financial purchases,” Kovacevich said at one executive retreat in 2001.“It’s about ‘Share of Wallet’.”
Kovacevich told subordinates what to do and how to do it – how to build the sale. “We must sell a package of products, all rolled into one, that are specifically designed to meet the targeted customer’s most basic needs,” he told executives in 2002, and explained that meant a bundle of accounts including checking, savings, credit and debit – the ‘pack’.
As that message moved from Kovacevich through the bank it grew even more emphatic, I heard again and again from former workers. In the branches, employees had quotas for how many new accounts they were expected to open in a day and those who missed their target faced consequences. They might have to stay late and work the phones to follow new customer leads or come into the office on the weekend and make more calls.
Workers who missed their numbers had to join conference calls where middle managers hectored them about poor performance. The pressure created a frantic search for new accounts in the branches and out on the streets, where no one was safe. Wells Fargo employees sought new customers at nursing homes, blood drives and grocery stores, soliciting shoppers as they perused the cereal aisle. Employees signed up homeless people and day-laborers who spoke no English.
Somewhere in the evolution of cross-selling, a malignant idea took root. What if new accounts were opened in a customer’s name, without customer consent? A customer was meant to fill out an application herself and sign the paperwork with her own hand, but that was not strictly necessary. There were workarounds. There is no evidence that senior executives explicitly told employees to concoct fakes. But workers had a goal and were expected to take it from there.
In the Wells Fargo branches – sites Kovacevich dubbed ‘stores’ – employees faced an absurd dilemma. It became next-to-impossible to do honest work at Wells Fargo and thrive, many former employees told me. If employees played by the rules, life was stressful and arduous. If they bent the rules, they might prosper for a time. Employees sometimes convinced a new customer (wrongly) that checking, savings and other accounts could only be opened together as a “pack”.
“I packed them up!” was heard in California branches when a customer was out of earshot, former employees told me. Some fusty customers kept a checkbook but did not have a debit card and those people were liable to get “PIN’d” or have a debit card opened with a made-up PIN number like 0000 and bogus personal information including an email address like email@example.com. Those details came from the Los Angeles City Attorney who sued Wells Fargo over the abuses in 2015. The Los Angeles Times first broke the story in 2013 and according to Kovacevich that newspaper account is the first time he learned about runaway sales pressure and abuse.
Kovacevich reigned at Wells Fargo and its predecessor bank, Norwest, for roughly a quarter century and insists he never imagined the sales culture could turn toxic. If that sounds like a disconnect there are others.
One of Kovacevich’s corporate slogans was to see “People as a Competitive Advantage,” which was supposed to mean Wells Fargo venerated its everyday employees as trusted advisors to the customer. And yet in the early 2000s, Wells Fargo was losing 20% of all customers yearly while the bank’s entire workforce churned every three years, Kovacevich noted in an executive meeting in 2002.
In our discussion, Kovacevich resisted the implications of the sales culture he created or Wells Fargo’s own findings that the roots of the problem stretch back to his tenure. Instead, Kovacevich espoused a mournful, ’mistakes were made’ attitude towards the whole mess. In his mind, Kovacevich held a pure idea.
Patrick Rucker is a senior correspondent covering Wall Street, finance, and the housing industry for the Capitol Forum.