In the wake of revelations that Wells Fargo employees opened millions of unauthorized customer accounts, the bank has lost yet another client: the State of California. On September 28, California State Treasurer John Chiang announced in a letter to Wells Fargo Chairman John G. Stumpf and board members that he was suspending California’s engaging in business for at least one year with its most profitable corporate resident: Wells Fargo. These sanctions include ceasing further investments in all Wells Fargo securities, suspending the use of Wells Fargo as a broker-dealer for state investments, and revoking the bank’s participation in two large municipal bond deals. As California is the largest issuer of municipal debt in the country, losing the state’s bond business could cost Wells Fargo as much as $700 million in fees.
The California Treasurer’s actions are in response to Wells Fargo’s $185 million settlement with the Consumer Financial Protection Bureau and the Office of the Comptroller of Currency for thousands of employees having opened deposit and credit card accounts under existing customers’ names without their knowledge, affecting customers’ credit scores and extracting millions in fees. Wells Fargo fired 5,300 employees for ethics violations related to the scandal. In an attempt to quell public outrage, Wells Fargo’s board announced it will claw back compensation paid to Mr. Stumpf as well as the former head of the retail banking division, Carrie L. Tolstedt.
The consequences of Wells Fargo’s conduct are far-reaching. The San Francisco Treasurer removed the bank from a list of financial institutions recommended for low-income residents. Wells Fargo is facing criminal investigations by federal prosecutors, and employees, customers, and investors have filed lawsuits against the bank. On September 30, the Illinois Treasurer, Michael Frerichs, announced it is joining California and will suspend Wells Fargo from handling the state’s investments and bond underwriting.
No doubt, these are just the first of many dominoes to fall. Outrage over this story shows no signs of dying down. No Congressional tongue lashing in recent history matches that given to Mr. Stumpf by Massachusetts Senator Elizabeth Warren at Senate Banking Committee Hearing on September 20, 2016:
If one of your tellers took a handful of $20 bills out of the cash drawer, they’d probably be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich. This is about accountability. You should resign. You should give back the money that you took while this scam was going on, and you should be criminally investigated.