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California Treasurer Suspends Ties With Wells Fargo California Treasurer Suspends Ties With Wells Fargo
(35 minutes later)
Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the San Francisco bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts. Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts.
The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.
“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 placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.“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 placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.
Mr. Chiang said he was also suspending his office’s investments in Wells Fargo securities and would suspend the bank’s work as a broker-dealer hired to purchase investments on the treasurer’s behalf. Mr. Chiang said he was also suspending his office’s investments in Wells Fargo securities and would suspend the bank’s work as a broker-dealer hired to buy investments on the treasurer’s behalf.
The suspensions will last for one year, Mr. Chiang said, or longer if he finds evidence that Wells Fargo has “re-engaged in the same behavior” or failed to abide by the terms of a consent order it signed with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.The suspensions will last for one year, Mr. Chiang said, or longer if he finds evidence that Wells Fargo has “re-engaged in the same behavior” or failed to abide by the terms of a consent order it signed with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
The move could cost Wells millions of dollars in banking fees because California is the largest issuer of municipal debt in the country. The state treasurer manages $75 billion worth of investments.The move could cost Wells millions of dollars in banking fees because California is the largest issuer of municipal debt in the country. The state treasurer manages $75 billion worth of investments.
But more than anything the move is symbolically hurtful for Wells, which has a large presence in California, particularly in San Francisco, where its top executives work and live.But more than anything the move is symbolically hurtful for Wells, which has a large presence in California, particularly in San Francisco, where its top executives work and live.
Mr. Chiang, a Democrat who is running for governor in 2018, said his office had “long relied on Wells Fargo, our oldest California-based financial institution, as a partner to meet the state’s investment and borrowing needs.”Mr. Chiang, a Democrat who is running for governor in 2018, said his office had “long relied on Wells Fargo, our oldest California-based financial institution, as a partner to meet the state’s investment and borrowing needs.”
So far this year, California has sold about $50 billion in municipal debt out of total of about $318 billion issued nationwide, according to Municipal Market Analytics, a research firm.
Mr. Chiang noted that he sits on the board of the state’s giant public pension funds, Calpers and Calstrs, which have a combined $2.3 billion invested in Wells Fargo stock and debt securities. He said he would use his position on the pension boards to push for governance changes at Wells Fargo, including separation of the chairman and chief executive roles. Currently, Mr. Stumpf holds both positions.
In a statement, the bank responded: “Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California. Our highly experienced and proven government banking, securities and treasury management teams stand ready to continue delivering outstanding service to the state.”
Separately, on Thursday, Mr. Stumpf is scheduled to testify in Washington before the House Financial Services Committee, having already appeared last week before the Senate’s banking panel. The responses he gave to the Senate committee investigating the bank’s misdeeds were widely viewed as a disaster. Nevertheless, according to a copy of his prepared remarks, he plans to stick with the same script he used last week.
His planned testimony, which was obtained by The New York Times, is a nearly word-for-word repetition of the introduction he prepared for last week’s Senate hearing, with just one notable difference: Hastening a policy change, Mr. Stumpf plans to say that Wells Fargo will eliminate sales goals for its retail bankers by Oct. 1, three months earlier than it had planned.
Those aggressive sales goals, which pushed Wells Fargo employees to open as many accounts as possible for customers or risk losing their jobs, have been blamed for the scandal now engulfing the bank, where myriad banking and credit card accounts may have been opened without the customers’ authorization.
“We decided that product sales goals do not belong in our retail banking business,” Mr. Stumpf will say, according to the testimony.
As he did at the Senate hearing, Mr. Stumpf plans to say that he is “deeply sorry” for Wells Fargo’s misdeeds and that he will “accept full responsibility for all unethical sales practices.”
Under fire over the unauthorized accounts, Wells Fargo’s board announced on Tuesday that it was stripping Mr. Stumpf of unvested stock awards valued at $41 million. He will also forgo his bonus this year and a portion of his $2.8 million base salary.
The clawback of both Mr. Stumpf’s compensation and that of Carrie L. Tolstedt, who until recently ran Wells Fargo’s retail banking division, was a move that members of the Senate panel suggested last week. The fact that the board decided to do so right before the House hearing does not seem coincidental.
And the move to retract a portion of Mr. Stumpf’s lavish compensation — at the time of Wells Fargo’s latest annual disclosure, he held shares and options valued at around $247 million — has not appeased some of the senators who harshly criticized Mr. Stumpf last week.
“This is a small step in the right direction, but nowhere near real accountability,” Senator Elizabeth Warren, Democrat of Massachusetts, said in a statement.
She again called for Mr. Stumpf to resign, to “return every nickel he made while this scam was ongoing” and to face a criminal investigation.
Wells Fargo has been in crisis mode since it acknowledged this month that its employees had, over the course of several years, opened as many as 1.5 million bank accounts and 565,000 credit card accounts that may not have been approved by customers. The company agreed to pay $185 million in penalties and fines to settle cases brought by federal regulators and the Los Angeles city attorney, and said it had fired 5,300 employees for ethics violations.
Mr. Stumpf’s defensive tone and efforts to minimize the extent and effects of Wells Fargo’s actions did not play well at last week’s Senate hearing. Facing a barrage of criticism about Wells Fargo’s leadership and what ex-employees describe as a toxic sales culture of relentless pressure to meet unrealistic goals, Mr. Stumpf maintained that the problem did not extend beyond rogue employees and that their activities “did not honor our culture.”
Banking analysts were not enthusiastic about the idea of him continuing that line of argument at Thursday’s House hearing.
“Given the nearly universal assessment that Mr. Stumpf’s Senate appearance was lackluster, sticking with the script may prove imprudent,” Isaac Boltansky, an analyst at Compass Point Research & Trading, wrote in a note to clients after reading the prepared remarks.
One big question facing Mr. Stumpf is whether he will remain at the helm of the bank and, if so, if he will have to relinquish is role as either chairman or chief executive. The board’s independent directors have hired the law firm Shearman & Sterling to work with them on an investigation into the company’s practices.
Some analysts who follow the bank are beginning to openly speculate about Mr. Stumpf’s possible ouster.
“Our support for the C.E.O. is now wavering,” Mike Mayo, a banking analyst at CLSA, wrote in a research note on Monday. “His actions have been reactionary versus leading.”