NEW YORK (TheStreet) -- California State Treasurer John Chiang announced the state is suspending business relations with Wells Fargo (WFC) - Get Report for a period of 12-months as a result of the banking giant's recent scandal.
It was disclosed this month that in order to meet aggressive sales goal Wells Fargo employees had been creating fake accounts using customer information without customers' knowledge or permission. The bank must pay a penalty of $185 million.
Washington College president and former chairperson of the FDIC Sheila Bair appeared on Wednesday afternoon's "Closing Bell" on CNBC to discuss the sanction.
"There's always a piling on effect when you have a situation like this," Bair said. "This is serious, this is very, very bad, though I do think what the board did yesterday was very significant."
Bair was referencing a board of directors' investigation that resulted in Wells Fargo CEO John Stumpf agreeing to give up $41 million in unvested stock awards.
"That's got to hurt. I don't know what the exact numbers are but I can only assume [Wells Fargo does] a large amount of business in California...It's just the reputational issue and the desire for state government officials to show a sign of disapproval and protest," Bair said.
Many investors, analysts and even members of Congress have called for the resignation of CEO Stumpf following the accounts scandal. However, Bair does see the need to show the head of the company the door.
Wells Fargo has "a lot of good people" within the company, it's a "good franchise," it's a "valuable franchise," and Bair believes you should take all of that into account when evaluating the bank's current issues.
Wells Fargo stock closed higher on Wednesday.
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Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate WELLS FARGO & CO as a Buy with a ratings score of B. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and attractive valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow.
You can view the full analysis from the report here: WFC