California’s state treasurer has announced he is suspending major parts of the state’s business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts.
In a letter to Wells Fargo, John Chiang asked, “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 well-being in its care?”
As we reported, “Wells Fargo said earlier this month it had agreed to pay $185 million to settle charges that it opened some 2 million deposit and credit card accounts for its customers without their permission over a five-year period.”
The new sanctions include the bank’s “most highly profitable business relationships with the state,” as Chiang’s letter read.
In an interview with The Two-Way, California’s deputy treasurer for public finance, Tim Schaefer, laid out the sanctions against Wells Fargo. They fall into three categories.
First, Schaefer said that the state won’t “buy any more of their debt securities,” which he said currently amount to approximately $800 million. He added that “we’re not going to go out and liquidate that tomorrow morning, because we don’t want to put the taxpayers of California at risk of a loss, but we’re not going to renew it. And that will all be gone over the next couple of months.”
Second, Schaefer said the state will no longer use Wells Fargo as a broker-dealer for buying securities. The value of that relationship is not clear, he says, but the state has “engaged in about $1.65 billion worth of trades with them, in that way, over the last 18 months. That $1.65 billion would be expected to produce high hundreds of thousands of dollars if not low millions of dollars in revenue for them.”
Third, Schaefer said the state will no longer use Wells Fargo to underwrite bonds. Over the last 18 months, the state has appointed Wells Fargo to five bond offerings, he said. “Two of those were terminated Monday afternoon, so that left them with three.” Those remaining three have amounted to about $1.75 million during that time period, he added.
He said two major aspects of California’s relationship with the bank will remain in place. Local governments can still use Wells Fargo to wire money to the state government. And two major public pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — have at least $2.3 billion invested in the bank’s fixed income and equity. That money will remain where it is.
The message of these sanctions, Schaefer said, is that “ethics and responsibility in the community matter.”
In a statement to NPR after Chiang’s announcement, Wells Fargo said that it has “diligently and professionally worked with the state for the past 17 years to support the government and people of California” and “stand ready to continue delivering outstanding service.” It added that it is “very sorry and take full responsibility for the incidents in our retail bank.”
Yesterday, the company announced that its CEO and former retail-banking head will forfeit tens of millions of dollars in outstanding stock awards. CEO John Stumpf will forfeit such awards totaling about $41 million, while former retail-banking head Carrie Tolstedt will forfeit awards worth about $19 million. Neither will receive bonuses this year, the bank said.
Stumpf is scheduled to testify before the House Financial Services Committee on Thursday. As we reported, he was questioned by the Senate Banking Committee last week, which was “widely seen as something of a public relations disaster.”