The current and recent past executive managers of Wells Fargo (WFC) gamed the reputation for superior corporate ethics they had inherited from previous company leaders and consequences of that action are just beginning.
The recent disclosure of fraudulently-created bank accounts represents a violation of trust the company has with its retail customer base. That will cause the premium the company's stock trades for in relation to the other money centers to disappear.
If the same issues had been discovered at JPMorgan Chase (JPM) , Bank of America (BAC) , Citigroup (C) , Goldman Sachs (GS) or even Morgan Stanley (MS) , investors, consumers and the financial media would not have responded as negatively, or for as long, as likely to be the case for Wells.
Consumers and investors have been somewhat immunized to such transgressions at other banks because of how often they've occurred, especially since the Lehman crisis era.
The almost constant smirk on the faces of Morgan's Jamie Dimon and Goldman's Lloyd Blankfein send a constant Machiavellian message and reminder to everyone that in their minds corporate ethics are not absolutes; they are nuanced and the responsibilities of leadership require making hard choices that will result in harm to some.
These are not necessarily bad qualities for a corporate leader to have and in many respects they are required. The trust consumers and investors place in them is that they will make those choices wisely, pragmatically and not exclusively in their own personal interests.
But that is not the kind of representation Wells Fargo's management, and especially CEO John Stumpf, has communicated publicly about its operational principals and ethics.
The company has held itself out as having been uniquely separate from the rest of the banking sector and above the indiscretions prevalent in the mortgage markets that dragged down every other large bank, thrift and investment bank in the last housing crisis.
The actions taken by the bank's executive management team, over several years, evidences, at the very least, an awareness that employees were perpetrating a fraud on customers and could not reasonably have been unaware that it was institutionalized.
Although the media has fixated on the fact that the 5,300 fired employees represent about 2% of Wells' full time employees, it is more accurate to depict that percentage based on the size of the divisions from which they were terminated.
If they were all within the Community Banking Group that would represent more than 5% of the full-time employees of that division and if in they were concentrated in Consumer Lending and Operations it would represent more than 8%.
I've not been able to find disclosure on this, but in any case it is not reasonable to believe that management was not aware that institutional fraud was taking place.
The fact that the corrective action taken was isolated to low-level non-executive employees is, quite frankly, appalling, and an investigation into who at the executive level knew what and when is required.
Because of the façade of superior corporate ethics advanced by the company's management, the egregious manner in which both the fraud and its treatment by management was carried out is akin to finding out that a religious leader has been skimming from the collection plate and -- even after that is discovered -- attempting to ensure that the proceeds did not have to be returned.
Further, the milquetoast manner in which Stumpf presented himself and represented the bank to the Senate Banking Committee recently should infuriate anyone with an interest in the bank, either as a depositor, borrower or investor.
By doing so, instead of showing leadership and attempting to get in front of the problem by offering immediate corrective measures that would invariably include his resignation and that of many others on his team, along with the return of bonuses received, he's invited more scrutiny of the bank by elected officials, regulatory agencies and investigative authorities.
But the more immediate issue for investors is that the fraud uncovered so far was concentrated on the banks largest profit center, the retail depositor, which is also the banks primary borrowing customers.
The Senate hearing was a pivotal event for Stumpf, the bank and the consumers, borrowers and investors the bank serves. It was the last chance he had to proactively avert the trajectory for a crisis of trust in the bank's management from continuing. His apparent unawareness of this fact, based on his presentation at the hearing ensures, in my opinion, that the default level of trust between the bank and the rest is now irreparably broken.