Wells Fargo has been in crisis mode since it acknowledged last 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.
California Treasurer Cut Ties
Today, delivered even more bad news for Wells Fargo. According to The New York Times, California’s 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, citing Wells Fargo’s “venal abuse of its customers,”.
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.
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.
Decision Could Cost Wells Fargo Billions
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 state treasurer manages $75 billion worth of investments.
But more than anything the move is symbolically hurtful for Wells Fargo, which has a large presence in California, particularly in San Francisco, where its top executives work and live.
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.
Wells Fargo to Eliminate Sales Goals
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.”
CEO Stumpf Taking a Hit As Well
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.
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.”
Don Lawson is the Office Manager of the Bond & Botes Law Offices location in Knoxville, Tennessee. He holds degrees in both Accounting and Finance that he’s put to use analyzing complex business bankruptcy cases for the firm. Read his full bio here.