Seattle, in reversal, to keep banking with Wells Fargo
More than a year after Seattle voted to stop conducting banking business with Wells Fargo following a fraud scandal, the city reversed course and will keep using the bank.
Other governments that imposed bans on the bank following revelations in 2016 that bank employees secretly created millions accounts without clients’ approval have let those sanctions lapse, while others remain in place.
The Seattle City Council voted to end its ties to the bank in February 2017, citing Wells Fargo’s involvement in financing the Dakota Access Pipeline. The break-up was not scheduled to take place until the end of 2018 when Wells Fargo's contract with the city ended.
But earlier this month city officials announced that they renewed the city’s contract in which the bank handles $3 billion annually in city deposits.
It didn't have much choice.
After the 2017 vote, the city decided to break up its banking contracts into five smaller components to allow for smaller and mid-tier institutions to bid for city services, said Julie Moore, spokeswoman for Seattle’s Department of Finance and Administrative Services.
“That process resulted in no bids for banking depository services,” she said in an email, leading to the city to stay with Wells Fargo for three more years.
Wells Fargo spokesman Gabriel Boehmer said in an email that if the bank had ended its relationship with Seattle at the end of the year when the contract expired, the city would have been unable to collect taxes, pay vendors or operate efficiently.
“While we were neither given a fair review by the City Council nor an opportunity to discuss an objective view of Wells Fargo in the local community or the local impact of sales practice issues, we understand the potential impact of the city not being able to find a new bank,” he said. “It would have been a disaster. To put the city in distress is not who we are.”
Wells was fined $185 million by the Consumer Financial Protection Bureau and more than 5,000 employees were fired after the fake-account scandal.
Its municipal bond business was not part of the scandal but was nevertheless affected by the fallout, as governments like Chicago and New York and states including Ohio, California and Massachusetts announced that they would no longer do business with the banking giant.
The bank’s standing among municipal underwriters dropped from third place in 2016 to eighth a year later for 2017. For the first quarter of 2018, it remains eighth by volume, according to Thomson Reuters data.
When asked if the city would again utilize Wells Fargo as a bond underwriter, Moore said the city uses a competitive bidding process for bond deals.
“At the pricing of its bonds, all qualified underwriters are encouraged to submit bids,” she said.
Seattle is not alone in restoring ties. Some suspensions like Chicago and the state of Massachusetts were for only a year and have since expired. The New York City Banking Commission approved a one-year ban in May 2017 that remains in place.
San Francisco, Wells’ hometown, did not entirely cut business but approved two years of sanctions through December 2018 reducing business in some areas.
The states of California, Illinois and Ohio are keeping their sanctions in place.
In October, California Treasurer John Chiang announced he would keep in place for another year a state ban on Wells as a managing underwriter on bond deals. He said he wanted to see greater accountability from the bank in making fraud victims whole and assurances that its business practices have improved.
Last year, the Illinois treasurer's office also extended its ban on using Wells Fargo as a broker for investments or investing in its debt securities through October 2018.
Although Chicago and Massachusetts lifted their bans, they have not done any business yet with Wells Fargo, Boehmer said.
Most longtime municipal customers remain with Wells Fargo, which has been reaching out to government clients since the fall of 2016 to answer questions about its sales practices, he said.
“We have made foundational changes to identify and fix problems so they do not happen again,” he said.