Wells Fargo CEO Tim Sloan received the patented Elizabeth Warren treatment during testimony before the Senate Banking Committee last month when the Massachusetts Senator accused him of sharing in the blame for the bank’s fraudulent sales practices and opined that he ‘should be fired’, echoing comments she made about his predecessor, John Stumpf, a year earlier.
And just as the CEO has been making the media rounds to try to rehabilitate the bank’s battered public image, yet another scandal appears to be breaking - but this time it originated in the bank’s investment banking unit.
WSJ reported that the bank has fired four foreign-exchange bankers amid an investigation into that business by both the bank and regulators.
While the nature of the purported misconduct is unclear judging by the report, in an amusing coincidence, the news of the firings broke as former-HSBC FX trader Mark Johnson awaits the verdict on whether he defrauded a client when he was running part of HSBC’s FX sales business in London. WSJ reports the bankers were fired for cause.
The firings come as the bank continues with a wide ranging internal investigation that over the summer revealed that the bank had overcharged clients for certain auto insurance and mortgage products. Recently, the OCC said the bank may need to refund more than $80 million to customers relating to these sales in a report that was first disclosed by the New York Times.
All of those fired appear to be senior employees in the bank’s FX sales and trading hierarchy. Meanwhile, another senior employee was abruptly moved to another part of the business.
Those fired, the people said, were Simon Fowles, recently head of foreign exchange trading; Bob Gotelli, recently head of foreign exchange sales; Jed Guenther, recently a regional head of foreign exchange; and Michael Schaufler, chief spot dealer.
The bankers didn’t immediately respond to requests for comment or declined to comment.
The prior head of the foreign exchange group, Sara Wardell-Smith, was moved to a different role at the bank, the people said. Ms. Wardell-Smith’s LinkedIn profile refers to a role beginning in October leading part of Wells Fargo’s financial institutions group. She had held several roles in the bank’s foreign-exchange group after joining Wells Fargo in 1995 and led the group for the past decade.
Ms. Wardell-Smith didn’t respond to requests for comment.
The bank spokeswoman said Ms. Wardell-Smith accepted a new position as Americas regional leader in Wells Fargo’s financial institutions group. She added that the bank’s foreign-exchange business “will continue to serve our clients under the leadership of Ben Bonner."
The bank’s issues, though, had mostly been confined to the retail-banking business. The foreign-exchange investigation now shows there is also trouble in Wells Fargo’s investment-banking arm. The issues have emerged separate from a review of business practices in the wake of the sales-practices scandal, according to a person familiar with the matter.
A Wells Fargo spokeswoman confirmed the departures after inquiries from The Wall Street Journal.
As WSJ points out, Wells Fargo’s investment-banking, securities and markets division, known as Wells Fargo Securities, is a fraction of the size of its U.S. big-bank peers. Its US investment-banking market share is just about 4% as of September, Dealogic said. And its forex desk is also smaller than its peers. Notably, the bank’s FX shop avoided being caught up in investigations into collusion between market participants to move foreign-currency rates for their own financial benefit. Those investigations led to more than $5 billion in combined penalties at a handful of large US and European banks. Last year, Barclays and a handful of other banks pled guilty to conspiring to manipulate currency prices. Earlier this year, former Barclays FX trader Jason Katz became the first person to plead guilty in the DOJ’s probe.
The question now is, will this scandal end with the traders’ firing? Or will the DOJ move against Wells and open a criminal probe? If evidence of “manipulation” is found (of course, manipulation today looks a lot like what were once believed to be acceptable hedging strategies by large dealers) it could lead to a crackdown.
Wells shares dipped on the news, but remained higher on the day:
While it's foolish to jump to conclusions about the nature of the scandal, one thing’s for sure: since most Americans don’t even realize that there’s such a thing as the foreign exchange market, let alone that traders are capable of manipulating it, any misconduct in that arm of the bank is bound to be less damaging than the realization that the bank’s salespeople opened millions of fake fee-generating accounts on behalf of customers who didn’t even know they existed.