South San Francisco, CA September 28, 2016 Press Release 
PR16:41
September 28, 2016
SACRAMENTO – Wells Fargo’s admission that thousands of its bank employees opened over two million fraudulent consumer accounts is a legal and ethical outrage that cannot go unpunished, State Treasurer John Chiang said today.
‘Wells Fargo’s fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed,’ said Chiang.
As the state’s banker, the Treasurer oversees nearly $2 trillion in annual banking transactions, manages a $75 billion investment pool, and is the nation’s largest issuer of municipal debt. His office historically relies on financial institutions, such as Wells Fargo, to serve as partners to meet the state’s investment and borrowing needs.
The Treasurer announced in a letter to Wells Fargo Chairman John G. Stumpf and board members that he has ordered the suspension of Wells Fargo’s participation in its most highly profitable business relationships with the State of California.
Those sanctions include:
Suspension of investments by the Treasurer’s Office in all Wells Fargo securities.
Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by his office.
Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the Treasurer appoints the underwriter.
‘I have a duty as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter,” Chiang wrote in his letter to Wells Fargo. “How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?’
These sanctions take effect immediately and will remain in place for the next twelve months. Wells Fargo is expected to comply with all of the terms of the consent orders it has entered with the Consumer Financial Protection Bureau, the Los Angeles City Attorney, and the Office of the Comptroller of the Currency. These consent orders include full reparations to the victims of its malfeasance, as well as making changes in its policies and procedures to ensure that such practices do not recur.
The letter warns the bank that if it fails to demonstrate compliance with the Consent Orders or evidence surfaces that Wells Fargo has engaged in the same behavior it will face tougher sanctions up to and including complete and permanent severance of all ties between the Treasurer’s Office and Wells Fargo.
In the meantime, Chiang said he will work with board colleagues at the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to pursue governance reforms ensuring this type of behavior and systemic corruption does not reoccur. Combined, the two pension systems have more than $2.3 billion invested in Wells Fargo fixed income securities and equity.
Specifically, Treasurer Chiang will seek the following:
Separation of the chief executive and chair positions.
Appointment of a consumer ombudsman or confirmation that such a position exists, with detailed information on the position’s authority and role within the organization.
Development of an anonymous ethics reporting process and whistleblower protection program.
A review of Wells Fargo’s compensation practices.
“Clawbacks” of ill-gotten compensation for executives most directly linked to Wells Fargo’s deceptive and predatory sales practices.
Disciplinary action against Wells Fargo is not the first time the Treasurer has taken on a Wall Street bank. In May of last year, he banned the U.S. subsidiary of HSBC from participating in California’s $6.5 billion deposit program after receiving reports of money laundering and tax evasion.
Unfortunately, the occurrences of such fraudulent banking business practices have become far too common. The problems at Wells Fargo and HSBC are not isolated cases but are indicative of a growing breakdown of integrity in the culture of our financial institutions.
As a result, the Treasurer is forming a task force comprised of distinguished academics, financial regulators, and consumer advocates. They will be charged with crafting actionable recommendations to federal and state policymakers about how to reform the banking industry. These reforms will center on eliminating deceptive marketing, racially discriminatory lending practices, unnecessary fees, illegal kickbacks, and other abusive practices.
‘Just as Lehman Brothers and Bear Stearns learned the hard way that no bank is truly too big to fail, those banks which survived the Great Recession must now learn that they are not so powerful as to be untouchable,’ said Chiang.
Wells Fargo Letter to Board
Wells Fargo & Company
- Box 63750
San Francisco, CA 94163
Dear Chairman and Members of the Board of Directors:
The recent discovery that Wells Fargo & Company fleeced its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control, and, at worst, a culture which actively promotes wanton greed.
As the state’s banker, I oversee nearly $2 trillion in annual banking transactions, manage a $75 billion investment pool, and am the nation’s largest issuer of municipal debt. My office has long relied on Wells Fargo, our oldest California-based financial institution, as a partner to meet the state’s investment and borrowing needs.
But, to borrow from Albert Einstein, “Whoever is careless with the truth in small matters cannot be trusted with [larger] matters.” In the case of Wells Fargo, how can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?
I have a responsibility as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter. Toward this end, I am ordering the suspension of Wells Fargo’s participation in its most highly profitable business relationships with my office and the state of California.
More specifically, these sanctions include:
- Suspension of investments by the Treasurer’s Office in all Wells Fargo securities;
- Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by my office; and
- Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds, where the Treasurer selects the
These actions will be in effect as of the date of this letter and will remain in place for one year. During the remainder of my term as Treasurer, it is my expectation that Wells Fargo will comply with all of the terms of the consent orders it has entered with the Consumer Financial Protection Bureau, the Los Angeles City Attorney, and the Office of the Comptroller of the Currency (“Consent Orders”).
Evidence of such compliance must be provided to the Treasurer’s Office on a quarterly basis.
Please note that if Wells Fargo fails to demonstrate compliance with the Consent Orders or evidence surfaces that Wells Fargo has re-engaged in the same behavior showing systemic problems have not been addressed, the measures described will be extended and additional measures may be taken, up to and including a complete severance of all ties between the Treasurer’s Office and Wells Fargo.
In addition, I will use my seat on the boards of the nation’s two largest pension funds (i.e., the California Public Employees’ Retirement System and the California State Teachers’ Retirement System) to pursue governance reforms ensuring this type of behavior and systemic corruption does not recur.
Combined, the two pension systems have more than $2.3 billion invested in Wells Fargo fixed income securities and equity.
Specifically, the measures I seek include:
- Separation of the chief executive and chair positions;
- Appointment of a consumer ombudsman or confirmation that such a position exists, with detailed information on the position’s authority and role within the organization;
- Development of an anonymous ethics reporting process and whistleblower protection program or confirmation that such a program exists with detailed information on the program and how it operates;
- A review of Wells Fargo’s compensation practices; and
- Consideration of ‘clawbacks’ for those executives most directly linked to Wells Fargo’s deceptive and predatory sales
Just days before the bank admitted these wrongdoings, the company touted its “deep culture and right team” to investors in the company’s securities. Wells Fargo has not lived-up to its billing.
Wells Fargo’s venal abuse of its customers by secretly opening unauthorized deposit, credit card, debit card and online banking accounts illegally extracted millions of dollars in fees between 2011 and 2015. Moreover, the creation of unwanted accounts damaged consumers’ credit records, forcing them to pay higher interest rates on some loans.
This behavior cannot be tolerated and must be denounced publicly in the strongest terms.
Sincerely,
JOHN CHIANG
California State Treasurer