While this represents a slight departure from our monthly Michigan Banking Summary (which will be updated in a few weeks with the release of the October 2016 edition), I couldn’t help but chuckle (and wince) as I caught snippets of Wells Fargo Chief Executive Officer John Stumpf’s testimony before the Senate Banking Committee on Capitol Hill this past Tuesday. Comical, in the sense that genuine accountability for an incentive system gone awry appeared to be lacking. Yet also painful, in recognizing that these incidents unfortunately cast dispersion on all banks within an industry that is already vigorously trying to repair its sullied reputation coming out of the Great Recession. Consequently, the community banks that continue to be the lifeblood and supportive partner of their local markets, are once again unfairly painted with the broad brush of seeming corporate malfeasance by one of the industry’s largest players. Ironically, it appears that Wells Fargo, as an institution, gained virtually nothing in terms of corporate profitability from these actions. But rather, thousands of employees effectively gamed the system to presumably generate enhanced personal compensation and/or job preservation in a sales-driven environment seemingly laser-focused on expanding the bank’s internal customer cross-sell ratio. “Eight is Great” (versus most banks operating within a framework that typically elicits two to three services/products per customer) appears to have tragically morphed into “Eight can Humiliate.”
It makes me wonder if the creative minds in Hollywood are not already working on a sequel to the Tom Cruise and Jack Nicholson military classic, “A Few Good Men,” this time with a decidedly banking-oriented theme. If so, might the iconic courtroom scene play-out along these lines?
Tom Cruise (a certain Senator from Massachusetts): Mr. CEO! Did you order the “cross-sell targets?!!”
Chair of the Senate Banking Committee: You don’t have to answer that question!
Jack Nicholson (a certain San Francisco Bank CEO): I’ll answer the question. You want answers?
Senator: I think I’m entitled.
Bank CEO: You want answers?!
Senator: I want the truth!
Bank CEO: You can’t handle the truth! Senator, we live in a world that has shareholder expectations, and those expectations have to be met by executives equipped with spreadsheets and industry analytics. Who’s gonna do it? You? You, Senator Toomey? I have a greater responsibility than you can possibly fathom. You weep for those customers that had ghost accounts opened in their names and credit cards ordered without their permission, and you curse the Bank. You have that luxury. You have the luxury of not knowing what I know – that generating fake accounts and increasing our customer penetration metrics, while tragic, probably enhanced shareholder value; and my existence, while grotesque and incomprehensible to you, enhance shareholder value. You don’t want the truth because deep down in places you don’t talk about at parties, you want me in that corner office – you Need me in that corner office.
We use phrases like “cross-sell ratios,” “return on equity,” and “operating leverage.” We use these phrases as the backbone of a career spent building a financial institution. You use them as a punch line.
I have neither the time, nor the inclination, to explain myself to a person who rises and sleeps under the blanket of the very wealth of our capitalistic system that I provide, and then questions the manner in which I provide it.
I would rather you just said “thank you” and went on your way. Otherwise, I suggest you log-on to our computer network and start opening fictitious accounts. Either way, I don’t give a DARN what you think you’re entitled to!
Senator: Did you order the “cross-sell targets?”
Bank CEO: I did the job I was –
Senator: Did you order the “cross-sell targets?!”
Bank CEO: You’re DARN right I did!!!
This is a cautionary tale for all bankers to remain focused and diligent on doing the right thing as it relates to their customers. A solid ethical framework and sound moral compass are at the very core of traditional community banks – and both preserving and protecting that legacy of operational integrity continues to be critical as the industry moves past the financial crisis. Institutions continue to be under pressure to generate alternate sources of income and prudently leverage their organizations, as the lower-for-longer rate environment persists and regulatory costs need to be efficiently and effectively absorbed. Execution, oversight, and governance remain paramount.
Please do not hesitate to reach out to me and/or my colleagues at Austin Associates if we can be of assistance as you take your organizations forward.