Illinois Treasurer: State Will Suspend Wells Fargo Business
- by Dan Gutierrez
- in Markets
- — Oct 4, 2016
The state of IL is suspending $30 billion of investment activity with Wells Fargo amid its scandal concerning fake accounts. His office described the action as a "moratorium", and said more details are expected to be announced Monday.
On Sept. 8, Wells agreed to pay $185 million in fines over allegations of "widespread illegal" sales practices that dated to at least 2011. He reiterated the bank would drop the controversial program that pressured employees to hit sales goals, which subsequently led some to create fake customer accounts.
Democratic lawmakers in Congress, including Senator Elizabeth Warren of MA, have called on Wells Fargo to toss out the mandatory arbitration clause and allow customers to sue. Wells has its biggest employee hub in Charlotte with more than 23,000 employees.
She called the sales abuses "some of the most egregious fraud we have seen since the foreclosure crisis".
"We are very sorry and take full responsibility for the incidents in our retail bank", Boehmer said in a written statement.
The treasurers' actions are mostly symbolic.
The bank settled complaints over the accounts with USA regulators and the City of Los Angeles for $185 million.
"We'll send the auditors in and see whether there's maybe millions of dollars that should be going to IL residents", he said.
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The court case involved a lawsuit originally brought in a Montana court by former Wells Fargo employees who said they were wrongly discharged in June 2008 after one plaintiff, Georgia Arnold, reported a possible violation of public policy by using an ethics hotline.
Wells Fargo (WFC) is losing another big business customer: the state of IL. Rep. Maxine Waters (Calif.), the top Democrat on the Financial Services panel, made that same argument last week during a hearing with Wells Fargo CEO John Stumpf.
The suspension of activities will cost the bank "millions of dollars" in fees, Mr. Frerichs said, though he didn't provide a specific number. When nobody bought it, Stumpf retreated from that position Thursday, instead saying he understood the bank had serious problems.
"We certainly understand the concerns that have been raised", said Gabriel Boehmer, a spokesman for Wells Fargo. "And if they plan to back Stumpf, then the bank needs to use the (congressional) election recess to devise a political strategy to justify the decision".
Thus far, Stumpf and Wells Fargo board members have resisted calls to resign. The Department of Justice fired off subpoenas, kicking off an investigation.
Community banks and credit unions say their business have suffered since the passage of the Dodd-Frank financial reform law in 2010, bearing the brunt of new rules that were passed after the near-collapse of the financial system. LLC now owns 2,301 shares of the financial services provider's stock valued at $109,000 after buying an additional 905 shares during the last quarter. Could the Wells Fargo unauthorized accounts scandal be the last straw for ending Too Big To Fail?
Wells Fargo shares were down 1% Monday to $43.81.
The stock is trading at its lowest since early 2014.
