New York Mayor Bill de Blasio and city Comptroller Scott Stringer jointly announced Wednesday that they will vote to prohibit the city from entering into new contracts for deposits with Wells Fargo, citing the bank's fake-accounts scandal.
De Blasio and Stringer said they are suspending the bank’s role as a senior book-running manager for city general obligation and Transitional Finance Authority bond sales.
The New York City Banking Commission, which is scheduled to meet late Wednesday afternoon and of which de Blasio and Stringer are members, approves and oversees the banks that hold city deposits.
They said they will vote to prevent agencies from entering into new banking services or related contracts with Wells Fargo, as well as bar agencies from renewing or extending existing contracts on expiration.
The city, they said, will also suspend the use of Wells Fargo as a senior book-running manager for municipal bonds – a position that enables the bank to take the lead on city bond sales – for one year. The only allowable exemption, they added, will be for affordable housing financing, which has a direct benefit to New York City residents.
The Consumer Financial Protection Bureau fined Wells Fargo $185 million last year, and more than 5,000 employees were fired over business practices that drove employees to create more than two million new accounts without customers' knowledge or authorization, in a move to generate fee revenue.
Wells Fargo now holds contracts with the city to provide banking services, including operation of lockbox services that hold taxes and fees the city collects.
According to Anthony Figliola, vice president of Empire Government Strategies in Uniondale, N.Y., the action against Wells Fargo could trigger a domino effect among muni issuers.
"The financial services and has an image problem, some of which of its own making," he said. "This is another example of governments exercising their activism on the financial industry. Wall Street needs to pay attention and find ways to work with the city and other governments."
Aftershocks from the scandal have rumbled through the muni industry as well. Wells Fargo dropped to eighth place among municipal underwriters in the first quarter, from third a year earlier. Its par amount was down by more than 50%, to $4.19 billion from $8.39 billion a year earlier.
Wells Fargo accounts now hold about $227 million from New York City. Additionally, Wells Fargo acts as a trustee to the city's Retiree Health Benefits Trust, which has assets of roughly $2.6 billion.
Recently, Wells Fargo received a Federal Community Reinvestment Act rating of “needs to improve.” The city will reconsider the ban only when the bank’s rating is raised, said de Blasio and Stringer.
“The rules are very clear: if you fall below ‘satisfactory,’ we will no longer do banking business with you,” said de Blasio. “I encourage Wells Fargo to quickly clean up its act and do right by the millions of customers who trust the bank with their savings.”
“Wells Fargo appreciates the continuing dialogue with New York City and deeply values our relationship with the city," said Gabriel Boehmer, the bank's senior vice president and communications manager.
"More than four years have passed since the end of our last CRA evaluation period, and we are seeking an expedited review of the 2012-2015 exam. We hope to restore a national CRA rating that reflects our strong track record of lending to, investing in, and providing service to low- and moderate-income communities.”
Major municipal bond issuers such as California, Illinois, Ohio and Chicago have suspended the firm from doing state and state agency bond and financial services business.
“What happened at Wells Fargo was a fraud – and there should be consequences,” said Stringer. “We need to send a message to this bank and the broader industry that ethics matter. Public trust is a must – and accountability is non-negotiable.”
White-collar criminal defense lawyer Anthony Sabino of Mineola, N.Y., questioned the move by the city leaders.
"First, it is the job of federal regulators, not the mayor of New York City, to punish Wells Fargo for any wrongdoing," said Sabino, a St. John's University law professor. "That is already being done by the feds, to say nothing of shareholder lawsuits.
"Second, Wells Fargo is a major money center bank that services many New York City businesses and residents, and employs a fair number of locals. In punishing the bank, you punish innocent, hard working New Yorkers.
"Third, with all the city’s other, far more urgent problems, doesn’t the mayor have more important things to do?"
The Metropolitan Transportation Authority, which operates New York City's subways, buses, two commuter rail lines and several bridges and tunnels, put business with Wells Fargo and approval of the bank as senior manager for bond transactions on hold last fall.