Illinois, following California, sanctions Wells Fargo over accounts scandal
Less than a week after California suspended doing some business with Wells Fargo & Co. over its fake-accounts scandal, Illinois is following suit.
State Treasurer Michael Frerichs announced Monday that his office will not buy or sell securities through Wells Fargo, echoing similar sanctions made Wednesday by California Treasurer John Chiang.
Frerichs, who called the bank’s behavior “downright shameful,” estimated his office made about $30 billion worth of trades through Wells Fargo last year and that cutting off that business could cost the bank millions of dollars in fees. However, a Wells Fargo spokesman estimated the potential revenue loss at about $50,000.
The announcement, made at a morning news conference in Chicago, makes Illinois the second state to cut some ties to the giant San Francisco bank as officials look to sanction it over revelations that thousands of bank employees opened as many as 2 million accounts without customers’ authorization.
“Wells Fargo is a big financial player in Illinois,” Frerichs said. “I hope to send a message that their unscrupulous practices will not be tolerated.”
Wells Fargo spokesman Gabriel Boehmer said the bank understands Frerich’s concerns, though he noted that the bank division that serves government agencies is separate from the retail banking division at the heart of the accounts scandal.
“We certainly understand the concerns that have been raised. We are very sorry and take full responsibility for the incidents in our retail bank,” Boehmer said in a statement. “We have already taken important steps, and will continue to do so, to address these issues and rebuild the state’s trust.”
At a news conference in San Francisco last week, Chiang said his office for the next year will not invest in Wells Fargo securities, use the bank to broker sales or purchases of stocks and bonds, or pick the bank as the underwriter of certain state bond sales.
Chiang’s move was seen as a largely symbolic gesture, as it will likely deny Wells Fargo no more than a few million dollars in fees. Frerichs, too, said Wells Fargo will likely lose no more than a few million dollars in fees. That will barely dent the bottom line of the bank, which brought in $22 billion in revenue in the most recent quarter.
Still, if more states and public agencies pile on, the loss of public-sector business could add up to real money for the bank.
Also on Monday, Chicago’s city treasurer announced plans to divest about $25 million of Wells Fargo securities. Last week, New York’s Metropolitan Transportation Authority said it was reviewing Wells Fargo’s practices.
According to Bloomberg, which first reported Illinois’ intentions, Wells Fargo so far this year has underwritten about 6% of all municipal bond debt, making it the the nation’s fifth-largest underwriter of public debt.
The still-unfolding scandal at Wells Fargo, sparked by a 2013 Los Angeles Times investigation and reignited by a $185 million settlement announced by regulators last month, has riled lawmakers and made Wells Fargo a target for Republican and Democrat alike.
Twice last month, members of Congress castigated Wells Fargo Chief Executive John Stumpf over the scandal, comparing him and other executives to common bank robbers, ridiculing him for blaming the creation of unauthorized accounts on low-level workers and calling for his resignation.
Republican members of the House Financial Services Committee said Stumpf had harmed the entire banking industry and made it more difficult to argue for an easing of financial regulation, which has tightened since the financial crisis.
Though Wells Fargo admitted no wrongdoing in its Sept. 8 settlement with federal regulators and the Los Angeles City Attorney’s Office, regulators found that the bank created unrealistic sales goals and didn’t do enough to oversee employees, pushing some workers to meet quotas by opening unauthorized accounts.
The bank is under investigation by state and federal prosecutors as well as the U.S. Department of Labor, which is looking into claims by current and former Wells Fargo employees that they were forced to work unpaid overtime hours as they tried to meet sales goals.
The scandal could continue to grow and potentially engulf other banks, as regulators — including the L.A. City Attorney’s Office — have said they are investigating sales practices elsewhere to see if problems with unauthorized accounts are more widespread.
Illinois, too, is looking into other potential problems at the bank.
Along with cutting off Wells Fargo as a broker-dealer for his office, Frerichs said he intends to audit Wells Fargo to determine whether the bank has been complying with Illinois’ unclaimed property laws, which require banks to turn over money from some inactive accounts to the state. He said it’s possible that unauthorized account activity from bank employees could have made inactive accounts look active.
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UPDATES:
4:25 p.m. This article was updated with a response from Wells Fargo.
This article was originally published at 9:10 a.m.
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