SAN FRANCISCO (CBS SF) – Claiming Wells Fargo had fleeced its customers, California Treasurer John Chiang announced tough sanctions Wednesday on the banking giant in the wake of revelations that employees opened fraudulent accounts.
Chiang announced in a letter Wednesday to Wells Fargo CEO John Stumpf that he has ordered the state to suspend the bank’s participation in “its most its highly profitable business relationships with the State of California.”
Those sanctions include:
- Suspension of investments by the Treasurer’s Office in all Wells Fargo securities.
- Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by his office.
- Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the Treasurer appoints the underwriter.
“I have a duty as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter,” Chiang wrote. “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 have placed their financial well-being in its care?”
The treasurer said he would also argue for similar steps by both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, which combined have more than $2.3 billion invested in Wells Fargo securities and equity.
The state currently invests $800 million in Wells Fargo securities that are all due to expire in the next few months. Normally, the state might renew its investments in those securities but will instead let them expire, effectively withdrawing that amount.
The action came a day after the independent directors at the nation’s second-largest bank announced that Stumpf would forfeit $41 million in stock awards, while former retail banking executive Carrie Tolstedt would forfeit $19 million of her stock awards, effective immediately.
The announcements come ahead of Stump’s planned appearance before the House Financial Services Committee on Thursday, where he is expected to face a bipartisan grilling similar to what he experienced last week from the Senate Banking Committee.
The San Francisco-based bank’s independent directors are also launching their own investigation, hiring the law firm Shearman & Sterling to assist them.
In their announcement, the independent directors said the moves did not preclude the board from pursuing more salary clawbacks from Stumpf or Tolstedt, depending on the results of the investigation. Stumpf, as a member of Wells Fargo’s board of directors and chairman of the board, has recused himself from any decisions that may come from that investigation, the board said.
“We will proceed with a sense of urgency but will take the time we need to conduct a thorough investigation,” Stephen Sanger, Wells Fargo’s lead independent director, said in a statement.
Wells Fargo had been under pressure from lawmakers and others to implement its executive compensation clawback provisions after the bank agreed to pay $185 million to settle allegations its employees opened millions of accounts without customers’ permission to reach aggressive sales targets.
Stumpf has faced bipartisan outrage for his handling of the scandal. Republican Sen. Bob Corker of Tennessee said at a Banking Committee hearing where Stumpf testified last week that it would be “malpractice” if Wells Fargo didn’t institute any compensation clawbacks. Democratic Sen. Elizabeth Warren of Massachusetts told Stumpf he should resign and “give back the money you took while the scam was going on.”
Stumpf, a 34-year veteran of Wells Fargo and CEO since 2007, earned $19.3 million last year. Tolstedt announced her retirement in July and had been expected to leave with as much as $125 million in salary, stock options and other compensation before the board’s announcement.
The consumer banking giant, which is also the nation’s biggest mortgage lender, has fired about 5,300 employees over the sales practices. Lawmakers told Stumpf at the hearing those dismissals didn’t go high enough up the chain.
Stumpf was long admired for keeping Wells — until recently — free of scandal. The bank did not invest in as many toxic mortgages in the 2000s as its counterparts, and Stumpf initially declined to take bailout money from Washington before accepting it in a sign of solidarity.
He also was able to expand Wells significantly as a result of the crisis, buying up Wachovia. That gave the bank known for its stagecoach logo, which was primarily a West Coast and Southern bank, access to the lucrative East Coast and New York banking markets.
Stumpf was also well-known in the banking industry for his company’s ability to sell products to customers. While quotas varied by branch size and other factors, a typical employee had to sell between 13 and 15 banking products a day — a new account, a mortgage, a retirement account, or even online banking. The targets were high even in small towns.
Federal and local authorities said Wells Fargo & Co. employees trying to meet those targets opened bank and credit card accounts, moved money between those accounts and even created fake email addresses to sign customers up for online banking — all without customer authorization. Debit cards were issued and activated, as well as PINs created, without customers’ knowledge.
The Labor Department is investigating whether Wells Fargo abused its employees while driving them to meet the lofty sales targets. The bank says it has refunded to customers $2.6 million in fees charged for products that were sold without authorization.
Wells Fargo is also ending its sales-goals targets for its employees, now effective Oct. 1 instead of the earlier Jan. 1 goal. The date change appeared in Stumpf’s prepared remarks, seen by The Associated Press, for his planned appearance in front of the Financial Services Committee on Thursday.
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