LOS ANGELES — California State Treasurer John Chiang will continue the suspension of Wells Fargo as a managing underwriter on bond deals, he said Monday.
Chiang’s move will extend into a second year California’s financial sanctions against Wells Fargo, which stem from revelations that bank employees secretly created accounts without clients' approval.
“Given all that has – and has not – happened over the past year,” Chiang said, “the question I posed to Wells Fargo executives in September of 2016 remains: ‘How can I continue to entrust the public’s money to an organization that has shown so little regard for the legions of Californians who have placed their financial well-being in its care?"
The sanctions also include the suspension of investments by the treasurer’s office in Wells Fargo securities and the use of the bank as a broker-dealer for investment purchases.
Chiang, in a letter to Wells Fargo’s board of directors and Chief Executive Tim Sloan, said he would also ask federal regulators investigate other lines of the bank's business.
The treasurer, who is running for governor, said he is concerned about allegations that loans had been denied to “Dreamers,” students brought to the country illegally as small children who stayed; and that the bank overcharged veterans under a federal mortgage refinancing program; and forced as many as 800,000 consumers to buy expensive and unneeded car insurance.
“The opaque manner with which the bank continues to do business and the frequency of new disclosures of wanton greed and lack of institutional control makes this decision so clear that there really was no choice at all,” said Chiang in announcing his decision to maintain the sanctions he first imposed a year ago in September.
His decision, he said, also took into consideration Wells Fargo’s failure to respond to a series of demands he made for greater bank accountability in the wake of the original revelations that it defrauded millions of unknowing account holders.
“Wells Fargo is in the business of banking, not politics. Over the past year, we have met and exceeded all of Treasurer Chiang’s expectations," the bank said in a statement Monday.
"We have continued to serve the State of California, loaning $500 million this year to the Department of Water Resources for critical Oroville Dam repairs and underwriting a total of $800 million bond issuance for the state, the latter which saved the state’s general fund $1.3 million. We have served the Treasurer’s Office with distinction and integrity for a decade," the statement said. “We will continue serving the state and rebuilding trust with Californians as we take steps to become a better bank.”
In his letter to Sloan, Chiang reiterated some of the same demands he made last year before his office would lift the sanctions.
He requested that the bank provide written evidence each quarter that it is in full compliance with the terms and conditions of consent orders entered into with the Consumer Financial Protection Bureau, the Los Angeles City Attorney and the Office of Comptroller of the Currency. If the bank is out of compliance, it must present a plan of recovery.
He also wants information on the numbers of California consumers harmed, the concentration of those customers by branch location, ZIP code or city, along with the status of efforts to resolve grievances and make them whole; removal of the four directors who sat on the board during the unfolding of the bogus account scandal; and the bank to fund a study by a respected consumer organization on how financial institutions can better serve Californians, especially the unbanked.
“Such accountability is needed more than ever if the bank hopes to repair the damage done to its customers, shareholders and employees following what is now known to be years of widespread consumer fraud,” Chiang said.
Wells Fargo has made progress in carrying out some of the corporate reforms that the treasurer’s office outlined in order for it to lift the suspension, Chiang said.
Those include separating the roles of chairman and chief executive, the departure of three board members who knew – or should have known – about the bank’s abusive practices, the rehiring of 1,780 employees it wrongly terminated, and the claw-back of $70 million in pay to top executives.
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Updated October 16, 2017 at 5:08PM: The story was updated with a statement from Wells Fargo.