California’s State Treasurer on Wednesday sanctioned Wells Fargo and ordered the suspension of business relationships between his office and the bank for one year after a scandal that has rocked the nation over the opening of two million fraudulent bank accounts.
John Chiang's move is unprecedented; he is the first state treasurer to issue such measures.
In what he previewed would be a “big announcement,” Chiang, who is running for governor in 2018, spoke outside San Francisco City Hall, announcing his sanctions. They include suspending investments by the Treasurer's Office in all Wells Fargo securities, not using Wells Fargo as a broker-dealer for buying investments, and ceasing to employ Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the treasurer appoints the underwriter.
"I have a duty as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter," Chiang wrote to Wells Fargo. "How can I continue to entrust the public's money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?
Chiang said the sanctions will take place immediately and remain in place for 12 months.
Venoo Kakar, an economics professor at San Francisco State University, said the state's message will resonate with all the big banks, especially if the monetary fines seem weak.
California is the nation's largest issuer of municipal bonds. Wells Fargo was the second-largest underwriter of municipal debt in California in the first half of the year, according to data compiled by Bloomberg.
In a statement, Wells Fargo spokesman Ruben Pulido said: "We regret and take full responsibility for the incidents in which customers received a product they did not request, as that is consistent with the values and culture we strive to live up to every day."
Pulido added, "We are very sorry and take full responsibility for the incidents in our retail bank."
Chiang serves as the state's banker, overseeing nearly $2 trillion in annual banking transactions. He manages a $75 billion investment pool and is the nation’s largest issuer of municipal debt. He also sits on the governing board of the nation’s two largest public pension funds: the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.
The New York Times noted the move could cost Wells Fargo millions of dollars in banking fees because California is the largest issuer of municipal debt in the country.
The Times also pointed out that the move is symbolically hurtful for Wells Fargo, which has a large presence in California, particularly in San Francisco, where the bank's headquarters are on Montgomery Street.
Before Chiang made his announcement, Wells Fargo had already agreed to pay the national Consumer Financial Protection Bureau $185 million and the bank’s CEO, John Stumpf, also agreed to forfeit $41 million.
"We have already taken important steps," Pulido said in his statement. "And will continue to do so, to address these issues and rebuild your trust."
More locally, on Sept. 22, Wells Fargo shareholder William Sarsfield sued Wells Fargo in San Francisco County Superior Court.
The complaint alleges Wells Fargo's senior management allowed the bank to commit a major fraud on consumers, which "resulted in serious harm to the bank."
And last week, San Francisco removed Wells Fargo from a banking program for low-income residents, Bloomberg noted.
All the angst stems from an investigation by the Consumer Financial Protection Bureau, which found that Wells Fargo sales staff opened more than two million bank and credit card accounts that may have not been authorized by customers. Money in customers' accounts was transferred to these new accounts without authorization. Debit cards were issued and activated, as well as PINs created, without telling customers. In some cases, Wells Fargo employees even created fake email addresses to sign up customers for online banking services.
Of the $185 million settlement that the bank agreed to pay: Wells Fargo will pay $100 million to the CFPB; $35 million to the Office of the Comptroller of the Currency and $50 million to the City and County of Los Angeles. It will also pay restitution to affected customers.
In its statement, Wells Fargo added that the bank has donated $53 million to support schools and nonprofits in California in the last year alone.
The Associated Press contributed to this report.