BRADENTON, Fla. – Charlotte, N.C., will buck a recent trend and keep embattled Wells Fargo Securities on its sale of up to $150 million of general obligation bonds.
Wells Fargo Securities will be co-manager on the deal pricing Thursday, while Bank of America Merrill Lynch will be the book-runner. The bonds are rated triple-A by Fitch Ratings, Moody's Investors Service, and S&P Global Ratings.
Wells Fargo has been rocked by the fake account scandal in its retail bank, which has led some issuers to discontinue using the investment bank on financings.
Charlotte has not considered removing Wells Fargo Securities from its underwriting team, said Scott Greer, Charlotte's treasurer.
"The investment bank is a separate unit of the bank, and our experience has been very positive with them," Greer said. "We have seen no evidence of inappropriate business practices."
Wells Fargo Bank NA is Charlotte's second-largest employer with between 20,000 and 35,000 employees, according to the preliminary official statement for Thursday's bond issue. It acquired Charlotte-based Wachovia in 2008.
Charlotte is not alone in its view of Wells Fargo Securities.
The state of Florida also has had "good experiences" with Wells Fargo's underwriting desk, said Florida Director of Bond Finance Ben Watkins.
Watkins said he believes that the investment bank should not be penalized for misdeeds of another unit of the bank.
"I would be reluctant to remove a dealer from an underwriting pool based on wrongdoing of the bank because they are entirely different folks," he said. "Punishing one group for actions of another does not make sense to me under the circumstances."
In the last two weeks, bond issuers and states that have other banking relationships with Wells Fargo have taken aim at the investment bank because of actions that occurred in the company's retail bank.
Employees at Wells Fargo were spurred by sales targets and compensation incentive programs.
The controversy arose over 2 million bank and credit card accounts that customers may not have authorized. The Consumer Financial Protection Bureau said the bank failed to monitor the implementation of these programs with adequate care.
The CFPB has the authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
"Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed," said CFPB Director Richard Cordray, who signed a consent order with the bank on Sept. 4 imposing a $100 million civil fine.
Wells Fargo must also pay a $35 million penalty to the Office of the Comptroller of the Currency and $50 million to the city and county of Los Angeles.
Victims must be repaid, under the CFPB order, and Wells Fargo will hire an independent consultant to review procedures to ensure proper banking practices are followed.
Blowback from the scandal led California State Treasurer John Chiang last week to bar Wells Fargo from bond underwriting and other business and investment relationships with his office.
New York City officials said they might cancel business with the bank, while New York's Metropolitan Transportation Authority left Wells Fargo Securities off its senior managing rotation list.
On Monday, Illinois banned the firm from its bond and investment work, and the Chicago City Council also planned to consider a moratorium on bond-related business.
The city of Philadelphia is also evaluating its relationship with the bank, according to the mayor's office.
Watkins said he believes it is an issuer's prerogative whether to penalize a firm for wrongdoing.
"From my perspective it is somewhat misguided," Watkins said.
Terminating banking relationships with the unit of the bank responsible for the wrongdoing would be more appropriate, he said.
Although the state of Florida sells most of its bonds competitively, Watkins said he would not consider disqualifying a winning bidder under the circumstances that have occurred at Wells Fargo.
Wells Fargo Securities was the winning bidder on $159.8 million of Florida Forever refunding revenue bonds on Aug. 31, with a true interest cost of 1.58%.
"Low bidder wins and that's the way it should be," Watkins said.
Calling the events surrounding the retail bank a "media issue," Matt Fabian, a partner at Municipal Market Analytics, said it would have no impact on bond investors.
"Wells is one of the biggest liquidity providers and capital investors in the municipal market, and that's not about to change," Fabian said.
The city's "new issue bonds will be just as oversubscribed as anyone else's," Fabian said when asked if the decision to have Wells Fargo on the financing team could impact Charlotte's GO pricing.
"Charlotte's position is focused on using the best firm to get the best interest rate which should be their goal," Watkins said. "Sometimes politically motivated decisions can get in the way on getting the best deal for taxpayers."
Wells Fargo is a main depository bank for North Carolina, and held $155.6 million in bank balances as of June 30, said Brad Young, spokesman for North Carolina Treasurer Janet Cowell.
"The department will be actively monitoring the situation and will study whether Wells Fargo's past business practices had any effect on North Carolina government accounts," Young said. "We have no plans to take any additional action at this time."
The Charlotte deal will provide fixed-rate financing for short-term, variable-rate commercial paper used by the city to construct transportation and neighborhood improvement projects.
The deal, structured with serial maturities from 2017 until 2036, is as "plain vanilla" as you can get, Greer said.
The financing is part of the Charlotte's normal two-year process to convert its line of credit to long-term debt for the city's master capital plan, he said.
DEC Associates Inc. is the financial advisor.
Parker Poe Adams & Bernstein LLP is bond counsel, and McGuireWoods LLP is counsel to the underwriters.