California Suspends State Investments With Wells Fargo Over Bank's 'Fleecing Of Its Customers'
LOS ANGELES (CBSLA.com/AP) -- California Treasurer John Chiang says he's suspending some of the state's business with Wells Fargo amid a scandal over as many as two million accounts allegedly opened without customers' permission.
Chiang, a Democrat, said Wednesday he wants to send a message that the bank's behavior was unacceptable and he hopes his colleagues in other states will follow suit.
"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," he said.
Chiang's office is the nation's largest issuer of municipal debt. He says for the next 12 months he will stop using Wells Fargo as the managing underwriter on certain categories of bond sales, will avoid buying Wells Fargo securities and won't use the bank as a broker for investment purchases.
The letter (PDF) addressed to Wells Fargo Chairman John G. Stumpf and board members also warned the bank that if it fails to demonstrate compliance with consent orders or evidence surfaces that Wells Fargo has engaged in similar behavior, it will face tougher sanctions "up to and including complete and permanent severance of all ties" between the state and Wells Fargo.
Two of California's biggest pension systems - California Public Employees' Retirement System (CALPERS) and the California State Teachers' Retirement System (CALSTRS) - have more than $2.3 billion invested in Wells Fargo fixed income securities and equity, according to Chiang.
In a statement, Wells Fargo spokeswoman Jennifer Dunn said: "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.
"We certainly understand the concerns that have been raised. We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild your trust."
Dunn also noted that of the up to two million accounts affected, only 85,000 of those accounts had fees attached that may or may not have been properly assessed.
"However, to be sure we did the right thing, we refunded $2.5 million total," said Dunn.
The sanctions take effect immediately and will remain in place for the next twelve months, according to Chiang.
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