tv Squawk on the Street CNBC September 20, 2016 9:00am-11:01am EDT
>> not if they want to deal with the united states. >> watch the democrats attack on this policy. they'll attack. they've been out there on deficit spending. ronald reagan was a politician. >> jack, we want to thank you for your time. we're out of time. >> i'm sorry. >> congratulations on everything. thanks, jack. >> princeton review. >> you have to hear about it on "squawk on the street." we'll see you tomorrow. right now it's time for "squawk on the street". good morning. welcome to "squawk on the street." i'm david faber with jim cramer live from the new york stock exchange. carl quintanilla on assignment today. wells fargo ceo john stumpf testifying on the hill over the bank's misconduct generally speaking. let's give you a look at futures this morning to see how we're setting up for an open that's
less than 30 seconds away now. europe. what happened there? what will it tell in terms of a story for our markets? i can answer that by saying they're up over the major averages. we don't have italy or spain which we're sad about. ten-year note yield and crude oil always a key here. certainly crude has been according to my co-anchor, mr. cramer, in recent sessions, you can see the 10-year note deal a shade under 1.7. john stumpf is going to testify before the senate banking committee. he'll face questions about bank employees allegedly cheating customers by opening fake accounts to achieve their sales goals. in his prepared text, stumpf says, "i am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members and to the american public. i accept full responsibility for unethical sales practices in our retail banking business and i'm
fully committed to doing everything possible to fix the issue, strengthen our culture and take the necessary actionses to restore our customers' trust." last week on "mad money," stumpf told jim he doesn't intend to step down as ceo. >> it may mean, some people say, that you have to resign. >> jim, i think the best thing i could do right now is lead this company and lead this company forward. in fact, today we made an announcement about product sales goals. we never intended for product sales or any dynamic or any part of a management system to be misinterpreted. >> when does this end? is it early days? we spoke yesterday, the three of us, about the short memory of many people including customers. for most it doesn't really mean very much. give me a sense since we've seen
so many of these similar scandals, whatever you want to call it, how it's going to play out if you have a sense. >> you go before the senate and you say we screwed it up. board wants to get some of this money back from people. if it's me, i'll give it up. deeply sorry. first question, how did you let this happen? i'm very sorry it happened. it's my fault. second question, what have you done to change it? i apologize. it was my fault. you do that five times to five questions. and then they don't know what to say. that's what you do. those who chose to argue -- >> lloyd comes to mind. >> every time i try to make a point you steal it from me. >> i was in the room that day. >> he tried to explain, my late
father called me in the middle and said would you tell your buddy, lloyd, there's only 100 of those guys and america likes them. with the exception of senator joe mccarthy who walked out when they attacked the u.s. army for being communist, ill-advised strategy by the late senator mccarthy, you must go in abject and say the board wants my salary taken away, they'll do it. put it on the board. say i apologize. i'm sorry. use a ratio. the ratio has to be -- you know why you don't like leverage. it has to be 1 to 1. no leverage whatsoever. i'm sorry. i'm sorry. and then it's not like there's someone in the back room where he looks at and suddenly he doesn't tell the truth. there are people in that room that want to hear apologies and
mr. stumpf has to give it to them. >> from his prepared testimony, we do know he's going to say i want to make it clear there was no orchestrated effort or scheme as some have called it by the company. that would seem to be an important point that he's making. one that perhaps the committee will also tend to focus on and ask a number of questions about. >> this 2 million figure, the one that "new yorker" said was people that were defrauded. that number took -- it just kind of snowballed. there were 2 million possibles. they paid everyone immediately. if it was 2 million, everyone would have got a couple smackers. that's not what happened. that number took on -- it's an urban legend that it's 2 million. so it's very hard to stop an urban le urban legend. >> they didn't identify 2 million. >> when i asked him about that,
he said not true. false. in front of the senate, they're going to insist, they will insist that it was 2 million and so he can only say for so long that's not the real number. >> before we get onto the broader market -- >> we're done with that? >> you want to keep talking about it. >> hillary is weighing in. all right. the control room is taking us there so we'll go. clinton's open letter to wells fargo customers. she says mr. stumpf owes you all a clear explanation as to how this happened under his watch. there is simply no place for this kind of outrageous behavior in america. >> trump said nothing? >> haven't heard from mr. trump. >> he doesn't condone. >> i'm sure he doesn't condone. specific to stock price which people watching right now are curious about, there was an upgrade.
>> you want to know the truth? >> i do. i can handle the truth. >> you can't handle the truth. 3.5% yield and 11% earnings, people are going to buy wells. barring warren buffett saying stumpf has to go and if you haven't got that statement yet, you're not going to get it. warren buffett is like the 12th man in football. he's the 101st senator. if he says nothing, and the board wants to do claw backs, a week from now we're going to remember wells fargo as a stagecoach. stagecoach. >> got it. all right. >> are we done? >> we're done. >> did the control room say we're done? >> no, i did. >> i got something in my ear now. >> our executive producer also confirmed -- >> he's an eagles fan and flying high. >> let's move on -- >> first down.
>> futures on the rise. fed policy makers starting a two-day september meeting today if you haven't heard. an interest rate decision is out tomorrow at 2:00 p.m. eastern. also on the economic front, housing starts fell more than expected in august. down 5.8%. >> that's are horrible numbers. >> after two consecutive months of increasing. >> horrible. the wrap was that housing was getting stronger. don't forget that john stumpf said -- it was not a good number. >> is there a broader read through? >> weather in the south was very bad. one things that's happened is i heard more about the weather than any time in my life in terms of bad numbers. if you want to know the benchmark of bad numbers, they blamed oil and get this, get this, get this.
agricultural prices. >> they blamed oil. >> and agricultural prices. ag is down. >> oil which way was it going for them to blame it? >> the area is not strong. they have ann taylor and maurice. some people call me maurice. they have justice. some feel a miscarriage of justice and inflection point. these are funny. if you would stay with me or ever shopped, you would laugh your darn fool head off. >> never been in a dress barn nor do i ever intend to be in one. i don't spend a lot of time in barns either. i once tried to raid a chicken coop and i was timid enough to not even want to take the eggs. that's what we're talking about. i grew up in queens. no chicken. no barns. >> are you finished mortifying me yet? >> yes. >> thank you. let's go to work. first down. >> oil you mentioned as did dress barn. and ag. what about oil in terms of
interplay with our broader market given the action we saw yesterday? >> you can't have oil down 40 cents and expect to rally. the machines don't let that happen. they'll take advantage of the up and sell it. unless oil turns around -- you know saudis are pumping more than ever and no one care. venezuela, russia, opec meeting coming on and a side meeting in algiers and they're going to call for -- it's all just a joke. >> it's nonsense. >> when reveal it's a joke, it goes down. >> saudis do what they want. >> if they talk the price up, they get more. i mean, that's what they do. when it gets to 41, they don't like that. the president of venezuela, david, he's a one-man wrecking crew for the western hemisphere.
>> that's a scary situation. failed state as you said a number of times. very distressing to watch. >> another era where a lot of my friends went there as being a great vacation spot. >> i was there in the early '90s. it was great. i was visiting a buddy of mine that was working there. >> shop there at all? >> i didn't do any shopping? who goes shopping? i rode horses. i climbed mountains. you know what they love in venezuela? they love their scotch. all right. coming up, a stunning deal in the pharma sector. it's small but wait until you see what the premium is in this deal. also, coming up, sprint ceo marcelo claure. he will join us after the bell
$100 million but we're making an exception this morning because that will no longer be the case for a company being acquired by allergen. acquired off a $4.70 stock price for $28.35 in cash. that's 500% premium there. then there's something we call a contingent value. the right to receive up to $49.84 in cash if certain milestones are met after the deal. if, in fact, that would be the case and you would receive 49.84, the overall premium, jim, would be 1,550% making this a roughly as you see at the bottom there, $1.7 billion deal. now, keep in mind, it may not be a $1.7 billion deal. it may only be $540 million deal. it caught both our eyes because
it's rare, if ever, you see a premium at the outset of over 500% let alone one that could admit to 1,500% if cbr is made good by the prospects for its drugs, which treats severe types of nonalcoholic fatty liver disease characterized by the accumulation of fat in the liver with no other apparent causes so not from alcohol consumption. >> 2% to 5% of americans. additional 10% of americans have fat in their liver. that's the good news about this. now, david, on july 25th -- >> look at that stock price. we'll never see anything quite like that chart. it's the dream of every investor. i bought a $5 stock. i might end up with 80. >> now, what makes this is brent
saunders -- hold your ears for one second. on july 25th, this company, the stock tanked. why? because they did not meet their primary end point of a two-point reduction in the activity score although it did demonstrate a clinically significant improvement. it didn't meet the end point. what price would brent saunders have paid if it met the end point? >> i don't know. apparently -- >> i think it would have been the price of maybe three or four nfl teams. cowboys, bears, maybe giants. >> add them all together. this was a highly competitive auction. >> with who? >> i'm going to find out. >> how are you going to find that out? >> i'll talk to a banker who will tell me. this is big market because of obesity and diabetes. people talk about it could be as big as oncology in a few years in terms of scientific impact.
and their main drug, they believe at allergen it seems could be a cornerstone product. >> let's put this into allergen framer. it's just a fourth acquisition that's basic research where there can be things that happen that are gigantic. david, does that not sound like the opposite of the trio of the three musketeers that i'm talking about. >> you're talking valiant, milan -- >> this is a stake -- >> price increases. >> price increases for stocks. strike in the ground that says he'll take these incredibly small situations that might work and develop them into giant tent poles. >> he has the money to do it.
knew acquisitions would be part of the strategy there given the money they took in. >> can we just give brent his due. he's run pharmaceutical companies better than anyone in the world. >> we have video of john stumpf arriving on capitol hill. always interesting to watch. there he is. you can see him there. gray haired gentleman at the back of the line. there he is. >> no handlers. >> not a lot of handlers. >> he gets prepared to testify in front of the senate banking committee which we'll be taking live for you once that testimony begins. >> during our show? >> our show will be over. 9:00 to 10:00 will be over. >> i'm not going to let that happen. >> up next -- >> i'll share it in a split screen. >> up next, we have you again. imagine that. giving us a mad dash. get ready. >> first down. >> figure out what you're dashing about. another look at futures here as we get you closer to the open about ten minutes from now we'll start trading as you can see it does appear we'll have a higher open judging from the futures. we're back after this.
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this is a blank check for encanyarenca encana. we don't know what they're going to buy. 35 million shares really doing what i record as bargain basement bid for the assets. we've had pioneer do these. we've seen the old st. mary's sm energy. when you buy assets, you go up. the price is so cheap. this is the first time a blank check for encana. i don't know, david. i'm a little skeptical. >> are you? >> yeah. >> he's an englishman. that's the way they speak. >> i thought he was from boston. >> thankfully we left that behind. >> this is one that i think if they had named what they were going to buy, it would be 10.5. >> any guesses? where are they now and where is it likely? >> they have a lot of despair
properties in colorado. they're everywhere basically. they have to get oily. they're not oily enough as far as i'm concerned. oily being a term not about bankers but about actual stuff that comes out of the ground. >> understood. >> encana. you say that so well. >> we have an opening bell. six minutes or so from now. also by the way, sprint ceo is going to join us. >> do you have to wear glasses and hat? >> get the camera ready. he's about 6'5". >> he's 6'5"? >> yeah. there he is. right there. >> marcelo is 6'5"? >> he's very tall. >> we're coming back. >> hit him. hit him.
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session and often when carl is not here, i'll turn to you and ask what is the key to this market which means what are you focused on that you think will have broader implications perhaps beyond its own? >> i hate to default to a name that's been in the news for more than ten days. it's not going to be wells. it's going to be apple. this is the second note. the initial interest in the iphone has already peaked. my problem with that is once again analysts have seemed to, lets just say, be tepid no matter what apple does. i don't think that this is -- i think there's a long tail here to the apple phone. you didn't find any analysts who just said, you know what, that's amazing. you know why? there were very few holeds. you needed a hold to buy. >> stock up in the last few weeks. >> analysts never -- i think they all have lukewarm buys. they all kind of wanted to jump ship. they all feel that apple is
going to have another bad quarter. there's nothing there. i continue to focus on this service revenue stream. it's what everybody does. >> you downloaded a bunch. >> what i didn't realize was i need iphone 10 for that. >> your point is that's a lot of revenue to apple. >> as you build up this huge base, you get a big stream of revenue that these analysts still refuse to count and yet, wow, the margins are incredible. wells fargo is going up. nonstop. >> maybe the apologies are worth every apology is worth something in the stock price. as you hear the applause
building here at the nyse, you can see here at the big board, marcelo claure, ceo of sprint. celebrating a new marketing campaign. we'll speak with him in a couple minutes. over at the nasdaq, icf international. there it is. looks like we'll as we expect, set up for a higher open. you can see more green on the old realtime exchange. >> oil turns up because of rumors that someone is going to start. oil is still not going the direction that the bulls want. i keep that in mind only because yesterday the market was fine and oil was up 90 cents and then oil reversed to be up 23 cents and it took the market down. >> so that's still another key to this market. >> it's kind of everything.
>> speaking of wti, near the low of the session. 42.61. that's about six weeks we haven't seen that price. >> i don't think the rally is sustainable. >> 11th of august we traded around 41 bucks. >> difficult to have a sustainable rally with oil going down like that unless oil reverses. oil only reverses on bogus rumors about some sort of venezuelan meeting. saudis love it. >> they do. they do. they keep pumping it. as for stocks, you mentioned earlier -- housing starts number wasn't good for august. >> this happened when i had dog on from toll brothers. they delivered amazing quarter. in the quarter they said our deposits are up. it didn't do anything. nothing. this group is in the dog house.
ln lennar is down big. >> kb home, by the way, rated outperform this morning. you see it. kb home is up. even though lennar had a better than expected number, it's down. and kb home getting out of this -- >> there's always a line that someone can say to point to that's not good. i mean, stewart miller, who i love, says the recovery has continued to progress in a slow, steady and sometimes choppy. now, don't use the word choppy. people say, wow, he has no conviction. that's how nutty this thing is with the housing starts.
housing is doing quite well. no one cares. >> tesla, i wanted to mention. >> why? >> the solar city votes seems to be delayed because they're citing lawsuits from tesla shareholders. last week at dangerous alpha. that was made the focus. solar city deal in particular. stock is up though this morning. solar city, i want to take a look at too. >> i have to say that i thought that the brief against solarcity was remarkable. remarkably negative. he was talking about -- >> solarcity is talking about a deal -- >> everyone is possessed by. >> monsanto, continues to defend
the deal strategically and on the antitrust front. it's 128. that's what the number was. you're talking about 102.59 stock. that does give you some sense as to where the market comes down at least in terms of the risk that's perceived. not to mention the time. it's going to be -- it could be 14, 15 months. there are many people who just wonder whether this thing really can undergo the scrutiny and come out the other side. >> i have a very hard time with it. i told you i think farmers are protected class worldwide. farmers say this will keep the two companies from competing with each other and getting us better seeds and i think lawmakers will reject it. farmers vote. big election next year in germany. there's as lot cooking. you don't want farmers to be against you. anywhere in the world. farmers are like jefferson. they are a favored class. >> good old jefferson. i do remember jefferson. i do. he was -- man, he came down hard
on washington in the early 1790s. there was a lot of infighting there. >> ever been to his house? >> no. >> breathtaking. you don't need me to say he was a genius. i mean, really. >> states rights. first republican party started there. jefferson. jefferson versus hamilton. hamilton would have been more interesting on what's going on on the screen than jefferson. >> can we look at that stock to restate there was competition from another large pharmaceutical company for this company that none of us really ever heard of. think of it as a private company. the market really wasn't particularly aware of it. $90 million market cap company. there it is almost -- up 29.79. it's gone up 30 bucks. 632%.
the deal itself, 28.35. there's the possibility of contingent value based on end points. i don't have those. they weren't in the press release. that could be worth almost 49 bucks. again treating the buildup of fatty tissue in the liver, which apparently not due to alcoholism but some people have it. >> and maybe brent knows that the rest of the study because the first study revealed in july wasn't so hot, that the rest of the study is going better and if that's possible, you do have a gigantic market. when they didn't make the key end points, i got concerned that this is not as good. remember, let's go over who is in this market. intercept pharma which has a good drug. they are all involved in this. so maybe brent saunders knows
that all of these companies do not have as good as this one. he's really smart. he's paid down 7 billion in debt. it's a crowded space. >> worth $106 billion. we have to get to bob. let's get to bob. then we're going to talk to sprint ceo. bob pisani is on the floor with more on what's moving this morning. >> an unusual day today in that the broader market is up yet oil is down. remember, oil brought down the market down off the highs earlier today. we're trading about $42. take a look at the markets. other than energy, most of the market is trading to the upside right now. you have real estate. there's our new s&p sector, financials, health care and industrials trading to the
upside. this is unusual. maybe not because this is the day before the fed. this is a very well known day in trading history. this is fmoc drift day or the day when we see the market moving to the upside. part of a well known paper that the fed put out in 2013 saying that since 1944, the gains in 24 hours before the fmoc meetings accounted for 80% of the excess returns in the stock market for the year. that's quite a startling number and really turned their heads about three or four years ago when that came out average gain on day before is 0.49%. right now the s&p is up 0.4%. we're right in line with a typical market before fmoc minute overall. what's the fed going to do? we don't know. the real surprise could come from the bank of japan which is also meeting. we'll hear their results late tonight and while the fed might sound hawkish, the bank of japan nobody is sure what they could
do. they could cut rates deeper. they could change magnitude of buying. they could do nothing. the yen has been strengthening throughout the year and moving slightly sideways in the last month or so. if you want to see the effect, talking about oil on the lower oil on the oil areas and the economy of the oil, look at lennar. they did beat on the top line. the orders were only up 8%. we expected them to be up 10%. that was the main source of the disappointment on lennar. houston was down 14%. there's the effect of the lower oil on the overall economy of houston. that's absolutely easy thing to discern here. home builders, most to the downside. new home orders were weak. major ones slightly to the downside. and ipo business is heating up. i know i have said this before. it really is. i count nine ipos happening tonight.
if we get numbers i'm thinking about, we'll have the most ipos in a week all year and september could be the biggest ipo month of the year depends on how next week shakes out. we'll have a nice price tonight. tech platform to add buyers on the nasdaq up the numbers. it was 14 to 16. they upped the numbers to 16 to 18. we'll keep an eye on that. should be pricing tonight for trading tomorrow on the nasdaq. right now the dow up nearly 71 points just off of its high. david, back to you. >> thank you very much. sprint shares are up more than 100% over the last six months alone. the wireless company now doubling down its words on the metropolitan area, the largest one in the country of course, that being new york. here in new york at the nyse to explain what that means is sprint ceo marcelo claure joining us. nice to see you. doubling down in new york, what does that actually mean and why now at conceivably -- you've been here for a long time.
new york has been an important market for a long time. >> there's times we made significant investments in our network. we invested over $600 million in new york and surrounding area over the last couple of years. our network is performing at record levels in new york. the latest ranking showed that we have the fastest network. we got the coverage. what we're going to do right now is put a large market into investment to let people know the quality of the product we have in new york and value we bring to new yorkers. >> doubling down is more marketing than actual improving the network because that's been done or is it both? >> marketing and network. we want to make sure we have the right product before we can do massive advertising and you're going to see the city painted yellow and we'll convince new yorkers to switch. >> okay. when it comes to the network itself -- by the way, you guys had an excellent quarter last quarter. this question keeps coming up. i asked it of you in the past. the amount you spend on capex
people say is too low to make improvements they talk about more for less on network improvement strategy using that amount of money. how can you justify what is the smallest capex expenditures out there with improvements you say you're doing. >> we've been doing this for two years. rather than always doing talking, we let the third party networks come and speak about our network. if you look at jd power, they already rank our network second to verizon, ahead of at&t, ahead of t-mobile in five out of six areas in the u.s. you've seen nielsen do the same thing. you've seen pc magazine. it's different when we are telling the story. we like it better when third parties who spend millions of dollars doing millions of tests looking at improvement that our network is doing. secondly, the most important metric that you can measure is churn. if you look at churn, we've been
sprint's lowest churn in its 21-year history since sprint entered the wireless industry and customers are coming. they're testing the product and they like the product and they're staying. >> let's talk about product. you came out last week and said the iphone 7 is a smashing success basically. you have a lot of orders. can you compare how the iphone is doing versus the samsung 7? >> so the iphone 7 for us has been a smashing success. any time you can preorder are 4x the previous year and closer to 5x to be clear -- >> that's news. thank you. >> we just got the last amount of preorders. >> almost five times previous year. you have to put that in perspective for us. >> you have a lot more customers. you gained a lot of customers year over year. >> that's correct. but keep it simple. number of iphone preorders last year versus iphone preorders this year is almost five times. you can look at it whichever way
you want. that means our customers love the iphone 7. they're upgrading. a lot of new customers coming. we're switching to sprint. >> they're switching to sprint from someone? verizon was not as bold in saying that -- the other guys said they had better numbers. are you taking from verizon? >> i'll tell you that this quarter alone we are positive against all three carriers. last quarter we were for the first time in last five years of sprint, we were positive. we have more customers coming from other carriers than customers going to them. >> how about the fire phone? what's the return rate on that? >> the what? >> the fire phone. >> samsung's phone. >> he calls it the fire phone. >> i watch you on twitter. you have a sense of humor. i thought you might go with that. >> we don't like to call it a fire phone. >> probably ill-advised for someone in your situation. >> we're being very responsible. we're notifying every customer. samsung is going to replace
their note 7. we have a lot of customers who are coming. not as many as we would like. anyone with note 7 on sprint, please come. we'll exchange it for you and give you a new note 7 that samsung has already started shipping. the ones that will not have an issue. >> you were quoted recently, yesterday, saying this will be forgotten in six months. why do you think that will be the case? >> because samsung is a great company. samsung makes great products. companies make mistakes. it was a technical mistake. it's been going on for a long time. difference today is we have social media and internet so any small thing that happens immediately catches on fire real fast. so we believe they're going to make great products. and consumers love samsung and they'll be buying samsung products again. >> back to this capex issue again, you indicated a lot of customer metrics that are positive. what are you doing more cheaply than your competitors in terms
of improving your network but spending less to do it. people look at those numbers and say they can't improve that much if they're spending this little. >> we're doing things very different. let's make sure we're clear. from 2012 to 2014, sprint spent a lot of money building its network. highest capex asset percentage of revenue. we built a great foundation. we all have great networks today. verizon's advantage is gone. we all have similar networks in different markets. some markets we're the best. some markets t mobile is the best. some markets verizon is the best. the lead that verizon had is gone and gone forever. where do you spend your money today? you look very good. >> was that a direct attack? this is a direct attack on verizon. right? >> i want to hear about where he's spending his money know. >> the can you hear any now guy -- >> that's a great ad by the way.
>> that guy will keep working. >> that guy is a bit of a traitor. kind of a benedict arnold. >> there's a big story that verizon will disclaim why they no longer use him. we'll leave that to verizon. we're investing money. you have to invest money in capacity. when you have the largest spectrum holding in the world, your cost to capacity is significantly lower than any other carrier. it's as simple as that. the industry has a problem admitting there's better ways and more efficient ways to build a great network. i'm done doing the talking. we'll let nielsen, jd power, and go on how our network is pretty much a network that's making improvements. >> how did you get the build on liquidity. you were burning through cash. you had to hesitate on that.
>> i'm not hesitating on that. i'm hesitating on the money. what we've done is we used nontraditional ways in order for us to raise money. the easy way was going to the bond market. what we're doing is we have a lot of things in our balance sheet such as spectrum and network that we can finance better rates. >> and finally, your controlling shareholder through soft bank, is he focused on arm holdings and letting sprint do its own thing or do you hear from him a lot? is he very much involved in the strategy you're dealing with? >> basically masa feels better in the direction that sprint is going so that allowed him to make a masterful axcquisitioacq. >> you have taken a page from john ledger. they gained 737,000ubscribers.
he may be taking something from you? >> i think we're both taking from at&t and verizon but john legere gets the same report i get. we are taking customers from t-mobile. >> online on twitter is not saying that. it's a twitter war. >> it's a twitter difference of opinion. >> that's why you're going to tell us the story about verizon and this fellow. >> i'm going to tell you -- >> give that. no one is listening. i'm not giving up on this. >> i will tell you a good story. we used you, jim, as inspiration as you were the guy who at the beginning basically said who is this guy? he's taking a transformational journey to nowhere two years ago. so our comeback video is you
saying that and you in our last quarter saying sprint is doing real good in every one of our videos. >> i have to admit they are. >> thank you for the update. we appreciate it. we'll keep an eye open for ads hitting the new york market. >> excellent. >> marcelo claure, ceo of sprint. let's head to the bond pits to join rick santelli at the cme group in chicago. >> one week of 10s tells it all. we're holding the top of the range for all of august in the 160 ceiling. if we look at charts from the beginning of june, 5 -- they've overperformed a bit on the pattern with regard to history. here's the under. the gilts are under with more of a drift southward on their yields.
dollar index one week going nowhere quickly. slight bias to the upside. june 23rd brexit day dollar index tells the story. it's not going anywhere although dollars are in demand globally and that will make a difference to the feds decision tomorrow. david, back to you. >> okay. thank you very much, rick santelli. let's get to capitol hill. john stumpf is preparing to testify from the senate banking committee. wi willfred? >> i had time to catch up with him in the corridor. he seemed calm and collected. calm enough, jim, to send his best regards to you. this is a very important hearing for him and his company due to start in about ten minutes. his opening marks are expected to increase the level of apology he's made thus far and then of course face tough questions from the banking committee. we'll have all of that live when "squawk on the street" returns. >> all right.
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>> all right. time for stop trading with jim. >> a stunning upgrade of general motors at morgan stanley saying it's not as horrible as you think. not that bad. don't worry. driverless cars. you have time. people are selling cars. this morning they say that ford trucks, ford pickup doing very well. nobody cares. there's john stumpf. >> there he is walking into the hearing on capitol hill. perhaps some drama there of course when we hear from the senators some of whom will excoriate mr. stumpf. he'll apologize many times. >> you have to assume the role of pinata in front of the senate. >> i've been in that room for hearings. it's quite a thing. all those cameras click, click, click. >> closest i ever came was wa h
watching. >> they're not getting too excited. >> put your hands up for detroit. no. the stocks are indicating that this year's earnings are peak and that earnings for next year and year after are bad. that's what has to change. gm will sell more cars in china than in the united states. i do not believe the negativity for gm or ford. ford is having a weak quarter. >> what do we have on "mad" tonight? >> you want a strong quarter? we have etsy. etsy is remarkable. brooklyn's own. >> awesome. >> replace the dodgers. >> i'll check it out and check you out here tomorrow. of course "mad money" first. >> tell john i said hi. we have to find out more about
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street." we are live at post 9 at the new york stock exchange. a huge hour ahead for us here. we have wells fargo chairman and ceo john stumpf sitting down just moments ago. will be testifying before the senate banking committee on capitol hill. also, president obama is getting ready to speak at the united nations general assembly. it's all coming this hour. we'll take you live to mr. stumpf when that testimony begins and of course keep you updated on the president. just want to check on markets quickly. looking at a 95-point rally for the dow. led by financials and industrials in the s&p 500 up half a percent. as we await the senate banking committee hearing over wells fargo, wilfred frost is there and joins us with the latest. >> reporter: as you saw just moments ago before the break, the ceo of wells fargo, john stumpf entered the committee room behind me. he's due to make opening remarks any second now.
in those opening remarks he's expected to increase the level of his apology thus far and say "i'm deeply sorry that we failed to fulfill our responsibility and that he accepts full responsibility for it." he'll go further than that and say "we did not get it right. we should have done more sooner to eliminate unethical conduct." however, he still seems intent on not resigning saying i am fully committed to do everything possible to fix this issue. those are some of the highlights we expect in his opening remarks. as we heard on "squawk box" earlier, that's not likely to be enough. his opening statement that was -- >> we'll cut you off and take you straight into that room where john stumpf, ceo of wells fargo has just started to testify. >> subsequently wells fargo
terminated 5,300 employees and will pay 835 million in fines and 5 million in customer remediation. sales data show that wells fargo has been an industry leader in its ability to cross sell products such as credit cards, checking accounts and home equity loans. a number of former wells fargo employees have described their work environment characterized by intense pressure to meet aggressive and unrealistic sales goals. in a 2010 letter to shareholders, mr. stumpf wrote that wells fargo's goal was eight products per customer because eight rhymed with great. the result was a corporate culture that drove company team members to fraudulently open millions of accounts using their customers funds and personal information without their permission. i've often said that banking is based on trust and that trust was broken at wells fargo.
while much has been written about these events, there are several questions that warrant answers. first, when did this conduct start at wells fargo and why were the regulators unaware of this growing problem? second, when did mr. stumpf and his senior management become aware of these activities and how did they respond? third, have all of the appropriate wells fargo employees been held accountable and to what extent? finally, where were the federal regulators while certain wells fargo employees were taking advantage of unsuspected customers over a period of many years. here's what we do know. wells fargo internal review only covers unauthorized accounts dating back to 2011. news reports and corporate documents suggest these problems might have existed long before
then. the 2013 "los angles times" article led to l.a. city attorney's office investigation into wells fargo's sales practices. thousands of man hours by a dozen dedicated l.a. city attorneys culminated in a lawsuit filed against wells fargo in may of 2015. this time line begs the question where were the federal regulators during these years? if the occ and the cfpb were aware of these issues before the l.a. city attorney's lawsuit, why did they wait until 2016 to bring an enforcement action? why did it take an "l.a. times" reporter to uncover what should have been uncovered by wells fargo's regulators? if there were ever a textbook case where consumers needed protection, this was it. how many millions of unauthorized accounts does it
take before the cfb notices and while it's build as largest settlement in history, it's unclear if had a significant role in discovering or investigating the bank's conduct. just as it's fair to ask mr. stumpf what he knew, when he learned it, and what he did about it is also fair to ask those same questions of wells fargo regulators. simple facts and circumstances, questions that occ and cfpb should be able to answer without violating any confidentiality restrictions. i look forward to today's hearing as both congress and the american people especially, the aggrieved consumers, have been kept in the dark for far too long. senator brown. >> senator, thank you for calling this hearing. i want to commend the city of los angeles for their actions in "the l.a. times" for bringing this to light. i was stunned when i learned of
the breath and duration of the fraud committed by wells fargo. i hope we can understand what went wrong and what needs to be done. i call it fraud because i got tired a long time ago. this is not a matter of customers who received products and services they did not want or need as wells fargo puts it. that makes it sound like a mix-up under the christmas tree and i got the right handed baseball glove meant for my brother, charlie. this is 5,300 employees wells fargo calls them team members. 5,300 team members forging signatures, stealing identities, social security numbers, and customers hard earned cash so as to hang onto their low paying jobs and make money for the high paid executives at wells fargo and they did it for at least, at least five years.
wells fargo's reaction has been remarkable. it did not treat this as a big problem until it appeared in the newspapers. it did not begin to make customers whole until this year. we don't know whether the bank chose to do so or was told they had to do so. wells fargo is taking out full page ads claiming it's accountable and accepts responsibility. it's not admitted to responsibility for a single misdeed in dealings with the city of los angeles and the federal government. wells fargo claims to have made things right with its customers, but its efforts have been incomplete. for example, it's not clear that pwc calculated the cost of a lower credit score, which might be paid every month for 30 years. at times, the bank has been downright hostile to aggrieved customers. rather than letting customers have their day in court, they were forced to abide by the mandatory arbitration clauses in
their real accounts. the bank invoked the fine print on a real account to block redress on a fake one which wells fargo had created. wells fargo team members struggling to support a family on $15 an hour. my understanding is wells fargo tellers make 11.80 an hour. team members struggling to support a family on $12 to $15 an hour followed their manager's guidance to do whatever it took to make their quotas. some may have worked off the clock. others cut corners to avoid being fired from missing goals, goals that wells now admits were too high. they've been accountable, these low income workers. workers lost their jobs with no parachute of any color. it's not just 5,300 team members who paid the price because many more were fired when they couldn't meet the quotas. still more chose to quit rather than cheat.
by contrast, the senior executive vice president for community banking has done quite well. she knew of this problem at least five years ago and is retiring with a package that may be worth more than the cfpb's record fine of $100 million. so 5,300 team members earning perhaps 25,000, 30,000, 35,000 a year have lost their jobs while she walks away with up to $120 million. despite firing thousands of team members, she apparently decided it was not important enough to alert the head of the company, mr. stumpf, or the board of directors or anyone else for two years, if ever, even though you both sat on that bank's board. senior management and the board of directors apparently agreed once the scandal became public, remedial actions were stepped up
against front line team members but the praise and performance bonuses continued to be lavished upon ms. tollstead until two months ago. you would think lessons of the financial crisis which came at a high cost to our country would change the way the banks do business and to be fair many banks did take lessons of financial crisis to heart but for the largest banks in this country, every week we hear of a new lawsuit or enforcement action against one of them. week after week after week after week. what are some of these lessons? first, the culture in these banks needs to change. that starts at the top. second, there must be reliable way for legitimate complaints to end up in the cease suite rather than circular fire. in wake of the fraud we saw at wells fargo and other places, banks need better controls because if you pay people on basis of how many products they sell, that's what they'll do whether it's in the interest of
the customers or not. and base pay needs to be increased. finally, change the pay structure or at least make incentives deferred so it's clear that customer and company interests are aligned and enduring. wells fargo has come up short on all five counts. that conclusion is not just based on this, its latest scandal. last year wells settled for 11 years worth of deception about deceptive practices in selling enhanced identity theft protection. at the same time the bank was stealing customer identities, it was charging for protecting them. if the wells i.d. theft product that they sold didn't discover the fraudulent wells accounts, perhaps some refunds are due. this april, wells settled a false claim lawsuit for $1.2 billion in part because it used bonuses to get staff to churn out and improve an ever
increasing quantity of fha loans and aplplying loan officers to approve more fha loans as quickly as possible. thousands of americans, we know so well, although unfortunately far too few of us know any of these people personally, thousands of americans lost their home through mortgage foreclosures as a result. i hope, mr. stumpf, you'll level with the committee and the public. words that come with san francisco fog won't cut it. these were not magically delivered unwanted products. this was fraud. fraud that you did not find or fraud that you did not fix quickly enough. instead of focusing on damage control, you need to admit to the problems and fix them and treat your customers in real life like you do in your vision statement. that would be the best damage control of all for your customers, for your bank, for your industry and for our country.
thank you. >> mr. stumpf, will you rise and be sworn. raise your right hand. do you swear or affirm that the testimony that you're go to give is the truth, the whole truth and nothing but the truth so help you god? you may be seated. mr. stumpf, your written statement will be part of the hearing record. you proceed as you wish. welcome to the committee. >> chairman shellby, ranking member brown and members of the committee, thank you for inviting me to be with you today. i am chairman and chief executive officer of wells fargo where i have worked for nearly 35 years. it is my privilege to lead this company, which was founded 164 years ago, and has played a vital role in the financial history and development of our country. we employ more than 268,000 team
members, 95% of whom are in the united states. 1 in every 600 working adults is a member of the wells fargo family and we have a presence in all 50 states. i am deeply sorry that we failed to fulfill on our responsibility to our customers, to our team members, and to the american public. i have been through many challenges at wells fargo but none of which pains me more than the one we will discuss this morning. wrongful sales behavior in our retail banking business goes against everything regarding our core principles, our ethics and our culture. it runs counter to our vision of helping our customers succeed financially, and it is not
representative of wells fargo as an institution. i am here to discuss the situation today, tell you about the actions we have taken, and our commitment on how to move forward. our entire culture is centered on serving our customers and in this case we let our customers down. our retail banking practice issue, sales issues, are not a reflection of our hard working and talented team members who deserve thanks for helping our customers with their financial needs. i want to make very clear that we never directed nor wanted our team members to provide products and services to customers that they did not want. that is not good for our customers and that is not good for our business. it is against everything we stand for as a company.
that said, i accept full responsibility for all unethical sales practices in our retail banking business, and i am fully committed to fixing this issue, strengthening our culture, and taking the necessary actions to restore our customers' trust. senators, let me tell you here today, the wells fargo board is actively engaged in this issue. the board has the tools to hold senior management accountable including me and the former head of our retail banking business. any board actions taken with our named executive officers will be appropriately disclosed, and i want to be clear on this. i will respect and accept the decision of the board.
under new leadership, we have already begun taking steps to ensure that the sales culture in our retail banking business is wholly aligned with our customers' interests. on september 13th, 2016, we announced a major decision that we will end product sales goals for everyone in our retail banking business. because we want to make certain that nothing gets in the way of doing what is right by our customers. the new leadership team's primary mission will be to provide the best possible service to our customers. i'm also announcing today three new initiatives that will reinforcement our commitment to our customers. first, we're expanding the scope
of our account review and remediation to include both 2009 and 2010. second, we will be contacting every single one of our deposit customers across the country using the same process that we agreed to with the city of los angeles for our california customers. and third, we have begun contacting hundreds of thousands of our customers with open credit cards including those for whom we have already refunded fees to confirm whether they need or want their credit card. in addition, we've recently started sending customers a confirmation e-mail within one hour of opening any new deposit account and acknowledgement letter before submitting a credit card application.
we recognize now that we should have done more sooner to eliminate unethical conduct or incentives that may have unintentionally encouraged that conduct. we took many incrementeal steps over the last five years in an attempt to address these situations, but we now know those steps were not enough. in 2011, a dedicated team began to engage in pro-active monitoring of data analytics specifically for the purpose of rooting out sales practice violations. in 2012, we began reducing sales goals that team members would need to qualify for incentive compensation. in 2013, we created a new corporatewide enterprise oversight for sales practices. in 2014, we revised our compensation plans to align pay
with ethical performance. in 2015, we added more enhancements to our training materials, further lowered goals and began a series of town hall meetings to reinforce the importance of ethical leadership and always putting our customers first. throughout this five-year period, we identified potential inappropriate sales practices. we investigated those and we took disciplinary actions that included terminations of managers and team members for sales policy violations. the 5,300 terminations over the five years that had been widely reported. despite all of these efforts, we did not get it right. we should have realized much sooner that the best way to solve the problems in the retail banking business was to completely eliminate retail bank
product sales goals. one of the areas that we missed was the possibility that a customer could be charged fees in connection with accounts opened without their authorization. because deposit accounts that are not used are automatically closed, we assumed this could not happen. we were wrong. and we took steps to refund fees that were charged and made changes so this could not happen again. in august 2015, we began working with a third party consulting firm price water house coopers, which conducted extensive large scale data analysis of all 82 million accounts, deposit accounts, and nearly 11 million credit card accounts that we opened from 2011 through 2015. of the 93 million accounts
reviewed, approximately 2%, 1.5 million deposit accounts, and 565,000 consumer credit card accounts were identified as accounts that may have been unauthorized. to be clear, pwc did not find these accounts had been unauthorized but because it could not rule out the possibility, these accounts were further reviewed to determine if any fees had been charged. pwc calculated that approximately 115,000 of these accounts had incurred $2.6 million of fees which had been refunded to those customers. even one unauthorized account is one too many. this type of activity has no place in our culture. we are committed to getting it
right 100% of the time, and when we fall short, we accept responsibility and we will do everything we can to make it right by our customers. i will close by saying again, i am deeply sorry that we have not lived up to our values in this way. i also want to take this opportunity to thank our 268,000 team members who come to work every day to serve our customers. today i am making a personal commitment to rebuilding our customers and investors trust, the faith of our team members, and the confidence of the american people. i'm happy now to address your questions. thank you. >> thank you, mr. stumpf. mr. stumpf, according to your testimony, wells fargo began making internal changes in 2011 to address the opening of unauthorized accounts.
did these problems start in 2011 or could there have been unauthorized activity before then? why 2011? >> i think we all know that not every team member will do everything right every day of every minute. and we do a lot of training of our team members, coaching. they each sign an annual ethics statement, and i can't guarantee it did not happen before that time. we are trying to manage it within the business. that's why i announce today that we're going back to 2010 and 2009 because at that time, as you might recall, we were putting the wells fargo teams together and we just thought we don't want to leave any stone unturned. >> wells fargo fired
approximately 5,300 employees in connection with these practices. what were the criteria for termination and were any personnel actions taken short of termination and if so, what were they? in other words, i'm sure you didn't fire everybody. did you discipline and why and so forth? >> so, senator, thank you for that question. it's a good one. we have a number of triangulations around how to understand when there might be improper behavior. if some customer shows up with three savings accounts, they probably don't need that or we have ethics lines. we have a culture in the company if you see something that you don't think is proper, raise your hand. talk to a manager. so we looked at a number of situations and some of them were perfectly legitimate, but for those that broke our trust, were
dishonest, put customers at risk, we drew a very bright line. we're a regulated institution and we have a fidelity bond and people who behave in this way simply can't work here. >> mr. stumpf, your testimony also also does not address when the violations were brought to the attention of senior management, specifically when did you find out that thousands of your employees were opening unauthorized accounts or fraudulent accounts? did it take that long? when did you find out? >> thank you again, senator. the business has -- they are on audit, investigations, sales practices, efficacy and so forth contained within the regional bank or the retail bank. after they had been working on this issue for a couple of years -- and again, this was way too many people but it was 1% of
our people at any one time, 100,000 team members in our banks and after we noticed after the business was dealing with this for a couple years, it was then brought to the holding company and corporate assets, corporate audit, corporate compliance, the so-called second line of defense got very active and that's when i became much more aware of the issue. >> does it bother you as ceo of such a large bank that systemic fraud was not brought to your attention sooner by your employees? >> if i could turn the clock back, and i thought about this a thousand times, of course i wish i would have done -- we all wish we would have done something more earlier. we didn't get on this fast enough. again, recognizing that this was the vast majority of people doing the right thing.
>> let's go back to the question a minute ago. i don't believe you answered it specifically. when did the senior management, you and others, you deem senior management, learn about this fraud? >> i can speak for myself and i know that other corporate executives at the corporate area outside of the business, i can speak to myself, and i believe others. it was 2013. before that, it was being dealt with with the audit and compliance within the business unit. >> mr. stumpf, the board of directors of wells fargo awarded the then head of the community banking millions of dollars. could be 100 million as senator brown says or more in incentive compensation for "success in furthering the company's objective of cross selling
products." and "reinforcing a strong risk culture" according to the 2015 proxy statement issued by your bank. explain to the american public today here, what accountability at a large bank looks like when an executive departs with millions of dollars in compensation after thousands of her employees defrauded customers? this question was raised by senator brown. >> i'll try to get to all of those, and if i don't, please, it's a good question. as leader of the community banking business had a lot of requirements and things that her performance was measured on. putting the business together. doing common branding. making sure customers were treated properly.
throughout that entire period from 2011 to 2016, customer loyalty scores continued to improve. today they are top of class even by independent studies of large banks. our team member engagement, we do a study every year and today we have 15 people engaged in that business. balances and customers had grown. now in this particular area, she did not do enough. the chief operating officer with my consultation decided we would go in a different direction. i want to be clear. she was eligible to retire. when she was told we were going in a different direction, she chose to retire and got no retirement severance benefits
and compensation she received in the past which was granted but not yet vested and other compensation will be considered by the board of directors in an independent process that they have and i will respect and accept whatever decision they make. >> that would be claw back? you have ability at the bank to claw back, do you not? >> you know, i'm not an expert in compensation, but i will get you whatever -- >> you're the ceo of the company, right? >> i'm the ceo. >> so are you the chairman of the board? >> i'm the chairman of the board. but i do not -- >> and buck stops here so to speak. >> i'm the senior officer. >> so are you going to look into this seriously about what this person did? her responsibility and the big reward that she's getting that happened under her watch? >> senator, we will -- the board of directors, the compensation
committee, they'll refer to the board, i'm not part of that process. i want to make sure that's a very independent process and nothing that i say would prejudice their deliberative process but that is their decision and they have all of the tools available to them, whether she would have retired or she would have been fired. >> mr. stumpf, in a lot of banking based on integrity and trust by your customers in the bank itself? they do business with you. they put their money there. they trust you. what's happened to the banking system? not everywhere but what's happened to the banking system? >> you know, senator, you think about exactly the way i think about it. trust is the core element of any relationship and surely in the financial services business. and we know we have work to do in that area. i intend to do all i can to help in that area. >> do you believe you violated
that trust? >> there is no question with some of our customers we have violated trust and we have to work hard to reearn that. >> senator brown? >> thank you, mr. chairman. mr. stumpf, i'll make my question short and ask you to be as concise as possible. i'll start with your response to senator shellby. you became aware of the widespread fraud in 2013. could you be more precise than that? when in 2013? >> i became aware that problems local business was working on in rooting out this behavior by 1% of our team members, give or take, i don't want to minimize that, that we were not making enough progress. >> when did you become aware more precisely? was it "the l.a. times" article? >> yes. later in 2013. well, actually, i don't remember the exact time frame. i can get back to you and staff.
it was sometime in 2013. >> thank you for that. you mention that the merger that you're willing to go back before 2011, 2011 and 2009 because of the wachovia merger. this has been a wells fargo business plan for a number of years, what year was the norwest merger? >> you're talking about -- >> norwest merger with wells. >> that was 1998. >> and so wachovia merger there clearly was -- you're going back to 2009 and 2010, you're offering to do that. why stop at 2009? we hear from people that it's gone on longer than that with the cross selling and the pressure and the sales goals. why are you only willing to go
to 2009? >> well, senator, i would tell you this. we want to make it right by any customer. and we agreed with our regulators in our agreements to go back to 2011. we made a decision to go back to 2010 and '09 and we want to make it right by any customer. >> does that mean you're willing to go back earlier than 2009? >> i can't tell you that today. i would have to talk to our folks. i don't know about records and so forth. i want to make sure any customer who has had harm of any kind that we will do right by them. >> you have records before 2009, is that a pledge from you to go back earlier than that if in fact there are customers that were harmed by unauthorized accounts? >> senator, i will take that under advisement. i'll get back to your team on this. >> i accept your good intentions that you're going back to 2009 to give restitution to -- to
provide restitution to those customers. why stop there if you have to go back and talk to staff. if you really do want to make sure these customers are made whole, you should go back as long as you possibly can. >> and senator, again, i think that's -- we've considered that. we'll take that under advisement. >> i hope you more than consider it. talk about the chairman's discussion on the clawback. you minimize your influence to us at least with the board. you're chairman of the board. understand that the board goes through a process. i respect that. you, as chairman, are you going recommend to the board -- back up. you, i would assume, are more familiar with both the pros and cons of performance from ms. tolstedt. she's slated to get up to $200 million and you're aware that
5,300 team members that were fired were low income workers, 11 something up an hour up to 16 an hour but low paid workers. so you're more familiar with that than any board member. with your knowledge and stature and your position on the board rksz will you make a recommendation to this board they should claw back a significant amount offi her compensation. >> i'll answer that question. i want to put something in perspective. the lowest paid worker we have are entry level in our least cost area is $12 an hour. lowest paid worker in our high cost worker is 16.50 an hour. in addition to that, $6 per hour doesn't include the benefits around health care which we pay virtually all of it for low paid people. most of the people that lost their jobs because they violated
our code of ethics, they were dishonest, were not -- those were good paying jobs. people lost their jobs who were bankers, bank managers, managers of managers and even an area president. these were good paying jobs. jobs that were the averages were in the, you know, 35,000 to 60,000 area if you want to make an average. but respect to your question specifically, i'm not on the human resources and compensation committee. that's an independent committee. and they will take that under their deliberation. i don't want to in any way prejudice their activity and i'm going to accept and respect any decision that they make on anything. >> thank you for saying that. so you are not willing to make a recommendation based on how this
looks to the public that call them good paying jobs at $16 or $17 an hour or not compared to what, i'll put that aside, but whatever workers were working they were in bottom of some percentage of the workforce. they made mistakes. they were dishonest. they apparently deserved to be fired. i won't dispute that. you're not willing as ceo of this bank to make a public recommendation that you think -- to make a public statement that you think that ms. tolstedt -- you're not willing to say publicly to this committee or to anyone that some of her compensation over $100 million when she announced retirement in the last several weeks, that any of it should be clawed back? >> i'm going to let the process proceed and the board has
already met, and i made an affirmative comment in my testimony. >> okay. that's unfortunate. you said in your testimony in august of 2015 your words we began working with pwc to locate and reimburse customers that paid fees. was that your decision? >> that was in consultation with regulators and with the city attorney's office. >> so you did not on your own after finding out in late 2013 of these problems, through the rest of 2013 through all of 2014 and then first seven months of 2015, it never occurred to you that you should bring in someone without the regulators suggesting it or pushing or in consultation, it never occurred to you to bring in somebody to really find out who was hurt, what kinds of issues were going on, how do we find these
customers to reimburse them? >> senator, that's a good question. i thought a lot about why. it was early in 2015, about the time that we were considering or talking about who we would bring in that we finally connected a dot. there's no excuse why we didn't connect it before. what happens when an account is opened that is not funded, the system eliminates it within a couple of months. if it doesn't get funded, it's not used, it's not started, it's closed. it never dawned on us -- again, no excuses. we were wrong. it never dawned there could be a cycle where a cycle -- a 30-day cycle would have been completed
and there could have been a fee associated with that. it was the first time that light bulb went on. >> i appreciate your candor about this. in 2011, 1,000 employees were fired. 2012, similar number. 2013 was a peak number. 2015, throughout the year, nothing happened. it seemed to never occur to management to do any of this when -- and then today -- i don't question your integrity but today you come in and make all these announcements. it's been at least five years since all of this has been happening. today you make announcements that you apologize. we appreciate that. you make announcements you're doing the right things. we appreciate that. but it just sort of begs the issue of where was management when so many thousands of people were fired? stories were written. regulators were starting to come in. i understand this is a huge
profit center for wells. the retail banking at large in terms of the unauthorized accounts and everything else. it just doesn't seem quite right that it didn't occur to anybody on the board apparently or at least that had your ear, didn't occur to the ceo and top management they should do something more affirmatively until that august 2015 date when the regulators sort of helped you suggest and come to that conclusion. thank you, mr. chairman. >> senator corker? >> thank you, mr. chairman. mr. stumpf, thank you for being here. as an observation, i know that you have a whole host of people here with you and i'm sure one of those people is a communications person. i would just make the observation, look, i know you talked daily with board members and been on boards before myself. i would suggest, again, as an observation, that to not invoke some degree of clawback for yourself and others involved
would be committing malpractice from the standpoint of just public relations. at a minimum, i'm sure that's going to take place. i would be surprised if it doesn't. let me just -- you found out about this through reading "the l.a. times", is that correct? >> no. i don't recall back in '13 exactly the time frame, but i learned about it later in 2013. >> but it sounds like it really was brought to your attention after a story in a newspaper? that's when the focus really began? i'm not criticizing. i'm just asking. >> only thing i want to make, senator corker, we had dismissed a number of people and that's what caused the l.a. times -- >> you had all taken actions, they wrote a story. your board, you know, i know public boards today, intense
scrutiny. all kind of committees that are set up. when did the board realize that you had a unit that was committing fraud? seems to me that's one of those things you flag pretty quickly or at least a committee of the board. >> and i just want to say these team members you're absolutely right. they did not do us right. >> i didn't ask that. i'm asking you when the board became aware that you had a unit that was involved in committing fraud? >> it would have been later 2013 and then 2014 and on. >> they weren't even aware of "the l.a. times" story? >> i think that was later in 2013. i would have to go back and check my records. it's the best to what i remember. it was sometime later '13. surely in '14. >> i read a story about ms. tolstedt. i don't know her. sounds like she was an incredibly hard worker. got to work early. rode a bus.
i don't know if any of this was true. how do you -- when you have somebody that is that involved in micro details is this them not raising their head to 5,000 feet and understand the culture they were created by eight is great and those sort of things? within a bank with all of the data you use to contact customers and -- i mean, you guys can pick this stuff up so quickly, it's hard to believe there isn't some report within the bank that would cause this to jump out at people and say something really bad is happening here. >> senator corker, i think that's a good question. in a retail business where you have 100,000 people in seats at any one time in our 6,200
branches, there is a lot of turnover. i'm not justifying -- >> but there's an officer, there's a compliance officer. all banks have these. you are all regulated to death. that's their job. this is something that you would think would be flagged and jump out at someone who was in that job. >> thank you. that's what i was trying to explain. in her business, surely she was, i believe, reporting situations where there was ethical breakdowns and -- >> but not to the board? >> it got to the corporate level in 2013 because progress was not being made at the board level in '14 as corporate resources started to -- we've been seeing improvements since that time. >> it wasn't just in fairness of -- it does seem like a big
disconnect there. so she left after 27 years. i think it would be good for the audience at some point not during my time to explain the entire compensation. i think it's a little different than most people think based on some of the comments that have been made. i assume her departure after 27 years was based on this issue, is that correct? >> it was based on a number of issues. this is one of them. we want to take the business in a different direction. >> she in essence was terminated over this issue? >> no. carrie chose to retire. there was a discussion with her in june or july and said we want to go in a different direction. we want to put an end and more focus on this issue. it was a variety of things. she was eligible for retirement and she decided to retire. >> my time is up and out of respect for other members i will stop. i have a number of other
questions. we thank you for being here. >> senator reid. >> thank you, mr. chairman. thank you, mr. stumpf, for being here. let me try to clarify your position going forward with issues of compensation. not just ms. tolstedt but your own compensation. will you formally recuse yourself from board deliberations? >> i'm not even involved in board discussions around what the hrc does with anything with respect to me and/or as they recommend to the board so there's no recusal required. i'm happy to do that. i'm not even involved in that. >> it will ultimately come up to the board for a vote of affirmation of the compensation committee, correct? >> it would. that's done in executive session without me. it's always been done that way. >> in 2013, when you learned of this, what did you do? this has been asked several
different ways. did you inform the regulators or instruct to inform the regulators of a growing problem? >> thank you. yes. i should have mentioned that earlier. yes. our primary regulator was informedyes. >> did you inform the board at that time? >> yes. i can't recall the exact meeting. but i can -- but it was some time in '13 and in 2014, various committees of the board were made aware of this. the risk, the corporate responsibility. >> did you take any steps to internally notify your employees of this type of behavior, which going back was, you know, 11,000 people, 12, 13, including an area manager? did you communicate that or simply keep these discussions internal to the board? >> i do a team member town hall
every quarter where i go to one of our various cities and there will be a couple thousand people in the audience and then we webcast that broadly across our company. and i typically talk about ethics and doing what's right for customers. in the case, the vast majority do it, but i was trying to really bring home -- >> specific evidence of techniques used to essentially -- words of my colleagues, to defraud customers. those specific practices were not focused upon and made very clear that they were not tolerate
tolerated. >> at the time of the escalation in 2013, there were many different meetings and things that happened as i mentioned in my written or my oral testimony about reducing goals, talking about sales efficacy, having manager meetings. talking with leaders. putting more controls in place. not fast enough, not far enough and i apologize for that. >> well, it seems that -- and i would assume look iing back, th emphasis on sales was unremitting yet you had examples of things that you knew were happening and should not be happening. yet what i'm hearing is more or less a generic make those sales. oh, and, by the way, we have this ethical rule in place, too. again, i think you've said it
and it's obvious that tone, emphasis, what the leader does, what the leader says is sometimes more important than anything else. >> for a period there, there was no specific stop this stuff. >> i can tell you, we said stop this stuff. the thing about cross sell is i would rather have a customer with two products that they use and they need and they want and they value than four products that are not used and valued. in the first case, customer does well we do well. in the second case, everybody loses. we tried very hard. we were not as effective as we could have been in talking about, you know, the goal here is not products.
the goal is deep relationships. we had the wrong tool for too long to make that happen. >> simple conclusion, it just seems that it took too many months, years, literally, for some simple steps which should have been taken to be taken. and it was only, i think, as a result of what ultimately los angeles county and the regulators and others did that forced the issue. thank you, mr. stumpf. >> thank you. >> director toomey? >> thank you, mr. chairman. what we've been learning is so deeply disturbing at so many levels. first we discover that wells fargo had a sales culture that was blatantly antithetical for customers, that they had too few
rules in place to prevent abuse that customers were subject to, wells fargo executives completely out of touch. in a 2011 forbes article wells fargo was rated the best at cross selling its products. only problem is we discovered that wells fargo wasn't always cross selling, signing up customers for products when you know the customer doesn't want the product. failing to notify these customers about these sham accounts. this isn't cross selling. this is fraud. that's what this is. then we discover way too little done to prevent it from continuing, even after it was discovered. so wells fargo employees continued, for years, to literally forge customer signatures, including my constituents on documents to open up accounts. and then the case of carrie tolsted on the order of $20 million bonuses for her between 2010 and 2015 were awarded because of strong cross sell
ratios. yet we know in some cases, she was hitting numbers by these fraudulent accounts. unbelievable. mr. stumpf, do you acknowledge that the employees who engaged in this activity were committing fraud? >> you know, i'm not a criminal, you know, officer. and i don't know the -- i'm not a lawyer. i don't know the legal term. i know this. they broke our code of ethics. they were dishonest and we did everything we can to support law enforcement in these issues. >> i'm not a lawyer either. neither are most adults in america. i think most people understand the definition of fraud. a knowing misrepresentation or knowing concealment of material fact to another to his or her
detriment. how does falsely signing a customer up for an account they don't want, how does it meet that definition? >> again, if that's the definition that -- i can tell you this. it's absolutely wrong. we found this out. we got rid of those people and they have no place -- that behavior has no place in our culture. if that means fraud, that means fraud. >> at what point did you alert your regulators and law enforcement that you had probably criminal activity happening on a large scale? >> yeah. well, again, it was 1% of our people, senator. >> 5,000 is a big number. >> it's bigger than my hometown, i do know that. and it was -- we also had the vast majority who did the right thing. but let's talk about those. every time -- we made a very bright line. if it happened one time, it was one time too many. >> i have only five minutes here. >> and to answer your
question -- i'm sorry. we sent it. we did everything we needed to do. >> you refer to law enforcement? >> when it was required, we did. we did everything according to the rules. >> when did you begin to disclose in s.e.c. filings that you had this potentially set of adverse circumstances that could have huge damage to your reputational value? >> well, i don't -- the -- i don't -- i can't answer that. i would have to get to our legal team. i don't have that in front of me. but this was not a -- i have to get back to you on that. i don't know. >> well, we haven't been able to discover such a disclosure. and the s.e.c. very clearly requires disclosure of material adverse circumstances. i don't know how this could not be deemed material. the market cap lost 9% over the last couple of weeks. that's pretty material. >> yeah. well, from a financial perspective, $2.6 million. and it's $2.6 million too much
and $185 million was not deemed material. >> i get that those dollar amounts may not qualify as material to a bank the size of wells fargo. but the reputational damage done to the bank clearly is material. and taps been shown by these th move in stock prices. you state unequivocally that there was no orchestrated effort or scheme as some have called it by the company. but when thousands of people conduct the same kind of fraudulent activity, it's a stretch to believe that every one of them independent ly congressured up this idea of how they would commit this fraud. isn't it probable that there's some orchestration at some
level? i'm not saying it was you. but don't you think there was some level of orchestration in this? >> we did fire managers and area managers and in one case a president this 1% is way too many. i don't want to minimize it. the vast majority did exactly the things we wanted them to do to help deepen customer relationships, help them succeed financially and also we have put a number of other controls in place besides taking sales goals off the table. we don't open any deposit account or credit card account without a signature. ada will have a dual notice. we're doing mystery shopping and giving customers a