Wells Fargo & Co’s (WFC.N) veteran chairman and chief executive officer, John Stumpf, abruptly departed on Wednesday bowing to pressure over its sales tactics that has damaged the bank’s reputation and put Wall Street under renewed scrutiny.
San Francisco-based Wells Fargo said Stumpf, 63, was retiring and would be replaced as chief executive by President and Chief Operating Officer Tim Sloan, 56.
The bank is splitting the role of chairman and CEO with Stephen Sanger, its lead director, becoming chairman.
Stumpf’s exit leaves Sloan with a steep challenge in rebuilding its reputation and overhauling its hard-charging sales culture without gutting profits. The new CEO will also contend with ongoing regulatory investigations and private litigation.
The departure is a stunning reversal of fortune for Stumpf, who successfully navigated Wells through the financial crisis and built it into the world’s most valuable bank with a focus on Main Street-style lending that was the envy of Wall Street.
“I have decided it is best for the company that I step aside,” he said in a statement.
The bank’s shares, which have slumped in the wake of the scandal, rose 2 percent in after-hours trading after the bank announced Stumpf’s exit.
Sloan said his immediate priority was to restore trust in the bank.
Long considered Stumpf’s successor, Sloan has spent most of his career at Wells working with corporations and institutional investors not the retail division, where the fraudulent accounts were opened.
But as the former CFO, and president and COO of the company since November, he has been responsible for the entire company, including the retail bank at the heart of the scandal.
Carrie Tolstedt, the woman who ran the retail division when the misconduct occurred, reported to Sloan from November of last year. She left the bank last month.
“They had three goals in replacing Stumpf: speed, integrity, and competence. If you want to move very fast and find someone intimately familiar with the business, you’ve got to hire an insider,” said Peter Conti-Brown, a business ethics and law professor at University of Pennsylvania’s Wharton School of Business.
“If you want to hire someone with unimpeachable integrity, that’s going to take time to find,” Conti-Brown said.
Sloan will preside over the bank’s third-quarter earnings on Friday.
FALL FROM GRACE
Stumpf’s fall from grace started with a $185 million (151.9 million pounds) regulatory settlement between the bank, regulatory authorities and a Los Angeles prosecutor over its staff opening as many as 2 million accounts without customers’ knowledge.
The misconduct, carried out by low-level branch staff to meet internal sales targets, shattered the bank’s folksy image and a raft of federal and state investigations followed.
Stumpf was summoned before the U.S. Senate and faced calls for his resignation after repeatedly deferring responsibility to low level workers and decision-making authority to his board of directors. Massachusetts Senator Elizabeth Warren called him a “gutless leader” who “should be criminally investigated.”
A week after that hearing, he agreed to forgo $41 million in unvested stock awards.
However, that was not enough and at a second hearing, some lawmakers called for the bank to be broken up.
California State Treasurer John Chiang, who announced a year-long ban on state business with Wells Fargo, released a statement praising Stumpf’s resignation.
“Based on his duck, dodge, and deny performance in the wake of admissions that his bank had fleeced legions of its own customers, he was not – and would never be – the change agent leader Wells Fargo so desperately needs,” Chiang said in the statement.
John Thielen, who grew up with Stumpf in Piers, Minnesota where he was a year behind the future CEO in school, said he felt sorry for Stumpf.
“He’s in hot water, but I think he put himself there,” Thielen told Reuters in a recent interview that preceded Stumpf’s resignation.