California State Treasurer John Chiang on Wednesday announced a sweeping suspension of business relationships with Wells Fargo as punishment for the company’s defrauding of customers.
In addition, Chiang vowed to work with the state’s two giant public pension funds to change the bank’s management structure.
The sanctions, which will last for 12 months, include suspending Wells Fargo as a managing underwriter on state negotiated bond sales, Chiang said. California is the nation’s largest issuer of municipal debt.
Wells Fargo on Sept. 8 agreed to pay $185 million to settle a case by California prosecutors and federal regulators over what were potentially more than 2 million unauthorized credit card and deposit accounts opened by branch employees scrambling to meet sales quotas. The bank said it fired 5,300 employees over the issue.
Chiang, who oversees nearly $2 trillion of California’s annual banking transactions and manages a $75 billion investment pool, called for the state to suspend Wells Fargo‘s “most highly profitable business relationships with the state of California.”
In addition to the suspension on underwriting on state negotiated bond sales, the sanctions include suspending investments in all Wells Fargo securities and suspend the use of Wells Fargo as a broker-dealer for investment purchasing.
“Wells Fargo‘s fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed,” Chiang said in a letter to Wells Fargo‘s chairman and chief executive, John Stumpf, and bank board members.
Chiang promised to work closely with the state’s two public pension funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, to among other things, advocate for the separation of the bank’s CEO and chairman roles and to appoint a consumer ombudsman.
Together, these funds hold more than $2.3 billion in Wells Fargo fixed income and equity instruments. He called for the bank to develop a whistleblower protection program and to “claw back” some executive compensation.
The bank will face tougher sanctions or permanent severance with the California’s Treasurer’s Office if it does not comply with the sanctions, Chiang said.