Wells Fargo & Co. (NYSE: WFC) moved forward this week to reorganize its retail-banking business, even as the firm proceeds with investigating into the causes of its sales-practices scandal. Certain senior executives within the retail bank were demoted, according to one memo sent to employees Tuesday. This followed the dismissal in recent weeks of other executives as Wells Fargo proceeds to report the scandal that occurred last fall after it surfaced that employees opened as many as 2.1 million accounts without customers' knowledge.
Mary Mack, who took over the tormented retail-banking unit in July, wrote in a memo Tuesday that she was restructuring groups within the business to expand its attention on approximately 6,000 branches across the U.S. The retail bank manages about 78,000 employees and serves around 40 million retail-banking clients. Ms. Mack wrote in the memo, evaluated by the Journal, that while the bank has attempted steps to restore trust with customers and employees, there is still additional work to do. That includes "changes in leadership and how our organization is structured," she wrote.
Wells Fargo sent an isolated memo Tuesday to certain employees warning them that an independent consulting firm likely touch-base with several hundred employees about the sales-practices issues, according to the memo reviewed by the Journal. The consulting firm is evaluating the bank's controls around sales practices to try to establish the root cause of the issues. The bank is completing this as part of the regulatory consent orders it entered into in September. Meanwhile, the bank's board is moving forward with its own investigation into the scandal. It will share results before Wells Fargo's annual shareholder meeting April 25.
In recent weeks, Ms. Mack has met with senior retail-banking executives and implied variations to the business that were specified in Tuesday's memo, according to people who attended them. In relation, two of the retail unit's top three employees, who were also lieutenants to former retail-bank head Carrie Tolstedt, were demoted. Ms. Tolstedt retired in July; the bank's board subsequently confiscated some of her long-term compensation. Among the affected executives, Lisa Stevens will proceed to leading the retail bank's western region, which ranges from California to Iowa, but will not oversee small-business banking anymore. She will continue to report to Ms. Mack.
John Sotoodeh, who took over the bank's disturbed Los Angeles region in 2009, also was demoted. He currently will oversee a region a fraction of the size of his prior role, which had included Texas, according to the memo. As a result, employees directly reporting to him will reduce to an predicted 7,000 from 15,000 previously. Mr. Sotoodeh, who previously reported to Ms. Mack, now will report to Ms. Stevens. Mr. Sotoodeh was recognized within the bank for forcefully pushing sales, especially during Wells Fargo's "Jump into January" promotional event each year, and for promoting lofty goals that employees had to reach. Former employees have stated that these goals compelled them to make fake accounts. Wells Fargo fired 5,300 employees over a five-year period for such behavior.
Mr. Sotoodeh was also one of a group of top retail-bank executives who were warned about probable sales-practices issues as early as 2012. Former head of deposit products Ken Zimmerman, who reported to Ms. Tolstedt, wrote an email in June of that year to a number of retail-banking executives, including Mr. Sotoodeh, Ms. Stevens, Ms. Lee, Shelley Freeman and Claudia Russ Anderson. The bank fired the latter two a few weeks ago. The email warned about customers receiving multiple checking accounts on the same day, an issue Wells Fargo had been looking into. "This is something to keep an eye on," wrote Mr. Zimmerman, who took a leave of absence in early 2016 and left the company in July, according to a copy of the email reviewed by the Journal. "The regional variation suggests bankers are likely driving some of this behavior" and Wells Fargo may risk a "customer perception that their money isn't safe."
The current and former executives didn't reply to requests for comment. Besides demoting Ms. Stevens and Mr. Sotoodeh, Ms. Mack plans to name three executives to supervise new groups: one specializing on small business and the "affluent," another on customer and branch experience, and a third on business strategy and administration, according to her memo. Earlier this week, the Journal conveyed that the bank also fired three retail-banking managers who directed large regions in California and Arizona, around one level below the four executives who were earlier fired.