California suspends business ties with Wells Fargo
Wells Fargo is taking another hit, this time coming from its home turf.
Saying that Wells Fargo’s “fleecing of its customers” cannot go unpunished, the California treasurer on Wednesday said he was suspending much of the state’s business ties with the San Francisco bank, which has been based in California since 1852.
The Treasurer’s office has long relied on Wells Fargo as a partner to meet the state’s investment and banking needs, but the bank can “no longer be trusted with the public’s money when it has shown such little regard to the regular citizens,” State Treasurer John Chiang told a news conference.
California, the country’s largest issuer of municipal bonds, is banning Wells Fargo (WFC) from underwriting state debt and administering California’s banking transactions for 12 months, effective immediately.
The announcement by comes a day after Wells Fargo’s board said CEO John Stumpf and the executive who ran the consumer banking division would forfeit tens of millions of dollars due to the bogus account scandal that erupted earlier this month.
California’s move, which could cost Wells Fargo millions in banking fees, could be made permanent unless the bank institutes some reforms, according to Chiang, whose office oversees $75 billion worth of investments.
“Complete and permanent severance” between his office and the bank will occur if it doesn’t change its practices, said Chiang, a Democrat. The treasurer is also suspending his office’s investment in Wells Fargo securities.
“Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California,” the bank said in a statement. “We certainly understand the concerns that have been raised. We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild your trust.”
In a letter to Wells Fargo’s board, Chiang said he was specifically looking for it to take the following steps:
• Separation of the chief executive and chair positions;
• Appointment of a consumer ombudsman or confirmation that such a position exists, with detailed information on the position’s authority and role within the organization;
• Development of an anonymous ethics reporting process and whistleblower protection program, or confirmation that such a program exists, with detailed information on the program and how it operates;
• A review of Wells Fargo’s compensation practices; and
• Consideration of “clawbacks” for those executives most directly linked to Wells Fargo’s deceptive and predatory sales practices.
Chiang last May banned the U.S. subsidiary of HSBC (HSBC) from participating in California’s $6.5 billion deposit program after receiving reports of money laundering and tax evasion.
“The problems at Wells Fargo and HSBC are not isolated cases but are indicative of a growing breakdown of integrity in the culture of our financial institutions,” Chiang said in a statement. “Just as Lehman Brothers and Bear Stearns learned the hard way that no bank is truly too big to fail, those banks which survived the Great Recession must now learn that they are not so powerful as to be untouchable.”