To the surprise of many investors, Tim Sloan, CEO of Wells Fargo (NYSE:WFC), announced his immediate departure from the bank last week. In this Industry Focus: Financials clip, Fool.com contributor Matt Frankel, CFP, discusses what investors need to know about the move, and what it could mean for the bank.
A full transcript follows the video.
This video was recorded on April 1, 2019.
Jason Moser: Matt, we wanted to talk this week about something that you and I have talked about on a few episodes now. Just recently, we were asking ourselves the rhetorical question of Wells Fargo and Tim Sloan and their whole executive suite mess, the horse poop that they continue to step in just week after week, it seems like.
Lo and behold, last week, we get the news that CEO Tim Sloan is stepping down. They have a search committee out there to try to find a new CEO for the company. It sounds like that's going to be an external search. I think we both fall on the same conclusion here. Do you think this is ultimately a good thing?
Matt Frankel: Yeah. I think it needed to happen. I'm not saying that a new candidate is going to hop in, and Wells Fargo is going to be a completely different bank tomorrow or next month or even in the next year or so. But this needed to happen for the bank to truly move on.
If you've been following any of the political dealings with Wells Fargo, Tim Sloan testifying in front of the Financial Services Committee. That was pretty much everyone's biggest complaint, is that he's still there. Not that Wells Fargo's not trying to right the ship, not that they weren't making cultural changes. The problem was that the people who had caused the problem in the first place were, for the most part, still there, Sloan included. He was president and COO during all the scandals in question. So, the fact that he's gone could open up a whole lot of doors for the bank to legally get past this mess. Elizabeth Warren, who's been Wells Fargo's biggest enemy in the news, has openly written a letter to the Federal Reserve asking them to keep their penalty intact indefinitely as long as Sloan was still there. I've talked about their penalty a few times. If you're not really familiar, it's that Wells can't grow past its size at the end of 2017 without the Federal Reserve lifting this penalty. The bank's not allowed to grow in what's a great growth environment for banks. If that were to be lifted, this would be a big deal for the bank.
It's not that Wells is going to be a different bank. It's that this could open the door for the government to say: "OK, now you're really trying to move on. Now we'll give you a chance."
Moser: When I look at this from our perspective, I feel like we asked this question an awful lot. If it's so obvious to us, I just don't understand quite why it wasn't so obvious to the powers that be at Wells Fargo. Why would you think, when they were looking to fill the CEO position a little while back, given everything that had happened to that point, and given what we knew, and clearly they must have known it as well, why do you think they went with an internal hire? I said before, it seems like you're going around your rear end to get to your elbow. It just doesn't make sense. It's not a smart decision. You're delaying the inevitable. Why do you feel like they would go with an internal hire as opposed to immediately going external and really trying to nip this thing in the bud?
Frankel: My feeling is, since the first thing that really needed to happen were the cultural changes -- meaning that their sales goals needed to be done away with, some departmental restructuring needed to be done -- maybe they wanted somebody in there who really had a great working knowledge. Sloan had been there since the '80s. Maybe somebody with a really good working knowledge of how the banks' different parts worked together would have made that process a little more efficient?
And, to be fair, the cultural changes and some restructuring, that happened pretty fast. I'm thinking that's why they kept Sloan in there as long as they did. For that phase of the getting past all this, they really needed somebody who knew the bank really well.
Moser: How long do you think it takes before they get a new CEO in there? This has to be something that happens fairly quickly, right? When we were looking at Square, for example, they were trying to bring a new CFO in, we thought it probably wouldn't take all that long, and it really didn't. I would have to imagine there's a short list of candidates already.
Frankel: I would be shocked if it didn't happen by the end of the second quarter. Like I said, Wells Fargo's No. 1 priority should be to get these penalties lifted and be able to really move on. That's not going to happen until they put a new CEO in there. So I think they're going to really try to expedite this process.