by Wolf Richter, Wolf Street:
Why is Tim Sloan still CEO, asks California Treasurer.
In a letter so brutally scathing it’s practically funny, California Treasurer John Chiang skewers Wells Fargo, its Board of Directors, and its new CEO Tim Sloan. And he extended the sanctions on Wells Fargo, first imposed in September last year, by “at least” another year.
The Treasurer’s office oversees “nearly $2 trillion in annual banking transactions, manages a $75 billion investment pool, and is the nation’s largest issuer of municipal debt,” Chiang pointed out last year when he imposed the sanctions on Wells Fargo’s “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.
With these sanctions, Chiang sought “real accountability and lasting reforms.” But it’s a long and complex relationship that dates back to the Gold Rush era:
Wells Fargo has evolved to become the nation’s second largest bank by total assets. California is set to become the world’s fifth largest economy. What we each do, therefore, matters and effects the public interest.
The sanctions were first triggered by revelations last year that Wells Fargo “had fleeced its own customers by opening millions of bogus accounts” which “raised concerns about the bank’s culture, leadership, and loyalties.” The sanctions were aimed “to spur” the leadership to answer this question:
“Could Wells Fargo identify and eradicate the root causes of this widespread and recalcitrant culture of customer abuse and restore public trust?”
Wells Fargo did accomplish a few things Chiang had demanded, including:
- Separating the CEO and the chairman into two positions
- Three of the board members “at the helm” at the time of the “bogus accounts scam and other abuses” have departed or will soon.
- Key executives were fired and “there have been claw-backs of executive compensation across the company.”
- Incentives for cross-selling having been eliminated.
But now there has been “a string of new disclosures about bad practices at the bank,” a veritable “infestation of problems” that “have come scurrying out of dark corners within Wells Fargo,” among them:
- The number of phony accounts has ballooned from an initial 2 million to now 3.5 million.
- This past July, news broke that as many as 800,000 consumers were forced by the bank to buy “lender -based” car insurance they did not need, tipping a quarter of a million Wells Fargo customers into delinquency and triggering 25,000 vehicle repossessions.
- In August, a new and different auto insurance fraud scandal broke in which the bank is being accused of failing to make refunds to consumers who paid off their loans early.
- Also in August, Wells Fargo agreed to pay $108 million to settle a lawsuit claiming it overcharged military veterans under a federal mortgage refinancing program.
As revelations like these are recurring “with such regularity,” Americans could “become de-sensitized to the bank’s pervasive exploitation of the public’s trust.” He added, “It concerns me when systemic fraud and abusive banking practices are broadly viewed as the new normal.”
The bank’s “reluctance to hang a lantern over past and present mistakes undercuts claims of repentance and meaningful reform.” He listed three examples of what Wells Fargo failed to do:
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