California, the country's largest issuer of municipal debt, will stop using Wells Fargo (WFC) - Get Report as lead underwriter for its bond sales as backlash widens over millions of of bogus consumer accounts set up by employees under pressure to meet sales targets or lose their jobs.
The state will also halt purchases of Wells Fargo securities and discontinue using the San Francisco bank as a broker dealer for its investments, state Treasurer John Chiang said Wednesday. The suspensions will continue for 12 months and the loss of "highly profitable lines of business" will be significant to the bank, he said, without specifying an amount.
The sanctions are the latest consequences for the phony accounts, which were disclosed when Wells Fargo reached a $185 million settlement with state and federal regulators including the Consumer Financial Protection Bureau earlier this month. The accounts, including checking, savings and credit cards, were created over at least a five-year period by employees making as little as $12 an hour and striving to meet sales targets of as many as eight products per customer.
As the scandal widened, customers, ex-employees and investors filed lawsuits against the storied bank, while congressional committees in both the House and Senate summoned CEO John Stumpf to hearings to explain what went wrong as well as his initial failure to discipline any senior executives, some of whom were paid millions during the period.
The company's board has since said it would cancel stock awards and incentive payments valued at more than $60 million to Stumpf and former consumer banking chief Carrie Tolstedt. Stumpf alone is forfeiting $41 million in unvested stock awards.
"Wells Fargo is not happy with the actions we're taking today," Chiang said at a news conference Wednesday. Still, "we don't want to see a decline over the long term with them. We want them to admit their wrongdoing, fix their practices and become a successful bank again."
Chiang, who holds seats on both the California Public Employees Retirement System and the California State Teachers Retirement System -- two of the country's largest pension funds, said he would work with his colleagues there to push for corporate governance reforms including separating the roles of chairman and CEO, both of which are now held by Stumpf. Together, the funds hold $2.3 billion in Wells Fargo stock.
The treasurer also joined U.S. Sen. Elizabeth Warren, a Massachusetts Democrat, in calling for Stumpf's resignation. "The actions that have been taken with regard to the clawback of $41 million fall far short of what is required," Chiang said.
Wells Fargo has worked with the state for the past 17 years, and its "government banking, securities and treasury management teams stand ready to continue," Jennifer Dunn, a spokeswoman, said in a statement.
"We certainly understand the concerns that have been raised," she added. "We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild your trust."