Society

Illinois Joins California, Suspends Wells Fargo

| by Nik Bonopartis

Illinois joined California in becoming the second state to sever ties with Wells Fargo after the revelation that employees at the embattled bank opened more than 2 million fake accounts to boost business.

The state's treasurer, Michael Frerichs, made the announcement on Sept. 30, echoing the concerns of California State Treasurer John Chiang, who announced four days earlier that his state would stop using Wells Fargo to underwrite state bonds.

Together with $185 million in fines levied against the bank by the U.S. Consumer Protection Bureau, the loss of state business threatened to further reduce the bank's revenue as it faces increasing pressure to replace CEO John Stumpf and explain how it ignored warnings about its illegal practices for years.

While the loss of California's business was a more serious financial blow as well as an embarrassment for the bank -- which is headquartered in San Francisco -- the news about Illinois threatens to start a trend, analyst Charles Peabody told Bloomberg.

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“In isolation, Illinois is not as significant as California, but it's part of a mosaic that’s starting to take form,” Peabody, a managing director at Compass Point Research told the news service. “And the mosaic that’s being built out does not paint a bright picture for 2017 earnings.”

The revelations about Wells Fargo include accusations that company employees created more than 2 million additional accounts for existing customers without letting them know, in some cases issuing credit and debit cards -- and even transferring customers' money into those accounts. In certain instances, Wells Fargo employees even created fake email addresses to complete registrations for the fraudulent accounts, according to reports.

Company executives blamed underlings while acknowledging that high-pressure sales quotas drove the effort to create fake accounts. A New York Times report earlier in September pointed to "aggressive sales goals" that put pressure on employees to open as many new accounts as possible or risk losing their jobs.

Stumpf was grilled by lawmakers in late September, including some who are the beneficiaries of Wells Fargo political donations, according to McClatchyDC. The company has donated to 10 members of the Senate Banking Committee, including Nebraska Sen. Ben Sasse, Tennessee Sen. Bob Corker, Nevada Sen. Dean Heller, and Kansas Sen. Jerry Moran, all Republicans.

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But the bank didn't limit its cash donations to one side of the political aisle. While it donated between $2,500 and $9,500 to U.S. senators, Wells Fargo executives and employees donated $49,750 to Democrat Hillary Clinton's presidential campaign, joining colleagues at banks like Morgan Stanley, JPMorgan Chase, Goldman Sachs and Bank of America Merrill Lynch, which gave Clinton's campaign a combined $432,610, according to the Huffington Post.

Thus far, Stumpf and Wells Fargo board members have resisted calls to resign. Stumpf tried to defend his company's tactics to lawmakers while company spokespeople have issued several apologies.

“We certainly understand the concerns that have been raised,” Wells Fargo spokesman Gabriel Boehmer said, per Bloomberg. “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 trust with the State of Illinois.”

Sources: Bloomberg, McClatchyDC, The Huffington Post, The New York Times / Photo credit: Wikimedia Commons

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