No bank is “so powerful as to be untouchable.”
In July 2009, the immense State of California, the largest issuer of municipal bonds in the US, began paying its suppliers with fancy-looking interest-bearing IOUs because it had run out of real money.
They weren’t negotiable, and no one could use them to pay employees or suppliers. So Wells Fargo, headquartered in San Francisco, announced it would accept these IOUs from its business customers. It would pay them the principal in full and with some limitations the accrued interest. It took a risk: California’s default was a real possibility.
This is how Wells Fargo bailed out California during the Financial Crisis.
But now the fortunes have turned. The problems keep piling up for Wells Fargo, for its misdeeds committed in California. And the state is awash in moolah; its revenues are heavily influenced by capital gains taxes, and the stock market has been booming for over seven years (this is how the Fed’s asset bubbles bailed out California).
And there’s a special motivation. State Treasurer John Chiang, a Democrat, has recently announced that he’ll run for governor in 2018 when Gov. Jerry Brown gets term-limited out of office. The Wells Fargo fiasco could not have come at a better time.
So Chiang sent a letter to Wells Fargo’s board to explain how he would punish the bank. The letter included this stern admonishment:
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?
With great media fanfare, he held a press conference at noon today in San Francisco and announced the deal to the whole world.
The scandal of the “fraudulent consumer accounts,” as Chiang put it at the press conference, the sales pressures put on employees, and the cross-selling in Southern California first came to light in 2013 when the Los Angeles Times reported on it.
The scandal came to a head on September 8, when Wells Fargo released a surprise statement, admitting that its employees had opened over 2 million fraudulent accounts. It also disclosed that it had settled these allegations for $185 million with federal regulators and the Los Angeles city attorney’s office. It fired 5,300 lower-level employees.
The scandal metastasized, leading to withering hearings in the Senate and the House, a Department of Labor investigation into overtime practices, a slew of shareholder and employee lawsuits, and finally, after intense pressure, compensation clawbacks: $45 million from Stumpf and $19 million from Carrie Tolstedt, the executive who’d supervised the guilty division.
It’s a “legal and ethical outrage that cannot go unpunished,” Chiang said at the press conference, adding:
“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.”
He pointed out that he, the Treasurer, as “the state’s banker,” oversees about $2 trillion in banking transactions per year and manages a $75 billion investment pool. And then there are California’s prodigious borrowing needs – balanced budget requirement, no problem – and these municipal bonds too are sold via broker-dealers, such as Wells Fargo.
So he would go after Wells Fargo’s revenues: for the next 12 months, effective immediately, he’d suspend “Wells Fargo’s participation in its most highly profitable business relationships with the State of California”:
- 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.
The sanctions will be lifted in 12 months if Wells Fargo mends its ways and complies with the terms of the consent orders it had entered into with federal regulators and Los Angeles City Attorney. If the bank fails to live up to these expectations, “it will face tougher sanctions up to and including complete and permanent severance of all ties between the Treasurer’s Office and Wells Fargo.”
Chiang will also “work with” CalPERS and CalSTRS, the two largest pension funds in the US. Together they hold over $2.3 billion in Wells Fargo shares and bonds. If they throw their weight around, they might be able to effect change.
Among the changes he demanded: separation of the CEO and chair positions – Stumpf holds down both jobs now – review of the banks compensation practices, a whistleblower protection program, and “clawbacks of ill-gotten compensation for executives most directly linked to Wells Fargo’s deceptive and predatory sales practices.”
Chiang had already gone after HSBC in May 2015, by banning a subsidiary “from participating in California’s $6.5 billion deposit program,” after he’d received “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.
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.
The Treasurer’s office however did not say how much in fees California paid Wells Fargo last year, and how much it stands to lose over the next 12 months. So it remains to be seen how much of a slap on the wrist this will be.
Wells Fargo acted as an underwriter on the sale of about $738 million of California bonds in 2015, which likely produced “about $4 million” in fees, according to the LA Times. And there were other fees. But in 2015, Wells Fargo booked $90 billion in revenues and $21.5 billion in net income. So the effect of the sanctions might get lost as a rounding error.
But at least, Chiang is making a point at a time when Americans have become exhausted from the serial misdeeds and fraudulent acts perpetrated by too-big-to-jail banks. Oh, which reminds me, no perp-walk yet again!
It’s not like Americans aren’t already struggling with enough problems, without having to look out for with fraudulent bank accounts. Read… “Negative Growth” of Real Wages is Normal for Much of the Workforce, and Getting Worse: New York Fed
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I wonder how many more scams the banks are running. Yield is very difficult to find without significant risk. This seemed like a good “temporary” means of improving results. I imagine those blameless executives collected bonuses for the results as well as the board and stockholders. The low level people Most likely got awards and cash as well for performing but I find it hard to believe that a scam that widespread is impossible to miss for people with average intelligence much less analytical bankers.
It’s just tough on Wells that the politics of the situation in a socialist state impacts the story. I would be willing to bet that similar activities are going on in other banks as margins are tight for all of them.
I wouldn’t bet against you Bookdoc. The tight margins have been 911 terrifying bankers since Enron was exposed for Arthur Anderson accounting. War has been used to mask the numbers. Trillions go missing from the Pentagon to cover their asses. The call to move money out of big banks and into local community and credit union banking can’t be helping much either. Keep moving your money folks, war is over if you want it.
Exactly, Wolf ! Only when banksters start going to prison will We The People know that true banking reform has begun to happen.
Can anyone explain how opening “fraudulent consumer accounts” can generate fees for the bank ???
Yes: account charges, over-draft charges, maintenance fees… the normal way banks make money off consumers on legitimate accounts, and they did on fraudulent accounts. The victims were existing customers with money in the bank.
Well thats lovely isnt it Sounds alot like how the squid treated its clients during the 2009 crisis I guess they lost a few depositors after this came out I only use a small local bank Never a big national one like Wells Fargo
wonderful warren’s scumbugget bank
most readers are probably too young to remember when the guy walked into the ny office of Monex and shot the boss; maybe we need to see something like that again????????????
You appear to be onto something big. This could become trendy before such crimes against humanity are brought to a close. The $187 million fine and Chiang’s slap on WF’s wrist are a joke.
Hmmm, I guess I was thinking ‘fictitious consumer accounts’, as how can you make money off of a non-existent customer ! Would it be more technically correct to call them ‘fraudulently manipulated existing consumer accounts’ ? I don’t mean to nitpick with you Wolf, and thanks for the clarification ! , as I have great respect for your accurately gathering data and sticking to the reporters credo of ‘just the facts man’ ! Whereas I too often engage in speculation and extrapolation of where the facts might foreshadow a future condition/situation.
As a side note, a friend with an account at Zions Bank, had fraudulent charges to her bank account on her monthly statement, she’d complain, and they’d reverse the charges. This went every month or so for over a year, but it ended about a year ago. Hope they got it straightened out before the state of Utah got on their case, as I’ve heard nothing about it since.
I remember reading a report that came out this summer about that sort of thing, before the WF scandal broke. It didn’t even name WF. It named other banks.
BTW, these banks (incl WF) use the arbitration agreements customers sign to brush off their complaints. So this is pretty common. I guess they’ll be more careful now.
And to think, there once was a time when a bank would give a new customer a free toaster. Now the customers are toast.
No bank is “so powerful as to be untouchable.”
But the banksters, like Buffet, Blankfein and Dimon, sure are.
I remember taking a banking class in college in the late 1980s and the prof (who consulted to the banking industry) told us that the retail banking industry was on a steady course to increase revenue through fees related activities.
I must have had the same college class, in the late 70’s.
This is way beyond “wanton greed” to outright fraud.. This is a company that believes it is untouchable and beyond the reach of the law and, in fact, has no fear of the law.. When the day comes that senior executives take the pinch, and not low level scapegoats, is the day this garbage ends..
“This is a company that believes it is untouchable and beyond the reach of the law and, in fact, has no fear of the law.”
Part of the high ROI on investments in regulatory capture and campaign finance bribery.
And to think that fraud and corruption used to be illegal. Now they’re best practices. Isn’t “democracy” wonderful?
It seems the cost for ‘bad business practices’ (outright fraud and scams) for US banks is still minute compared to the fines that the US is punishing some foreign banks with, like DB. Maybe the problem is that these foreign banks are less effective at campaign donations to the right politicians? Or maybe the recent 14 billion fine for DB (which used the same bad practices as several big US banks) was really US payback for the EU fine on mega tax-cheater Apple?
I have read about some other fines as well lately for EU banks and even some EU banksters that are VERY high compared to the small slaps on the wrist the the US banking cartel gets away with every time (maybe those private convictions were for banksters who didn’t cooperate too well with the cartel?). It’s stunning how the US fines many EU banks huge amount of money while the biggest manipulator of all in the case, the US FED and its deputies around the world, isn’t even mentioned …
I thought the DOJ and last decade of gov “intervention” has proven that banks and their “representatives” are beyond the reach of the “law”. Most recently, it would seem the C Foundation and Comey are both rather blatant examples that are helping to corrode whatever may have been left of the “law”. Make no mistake about it – we are in a banana republic now and that, ironically, you can take to the bank.
You mentioned the “C foundation.” You forgot to mention the T foundation, when it comes to “helping to corrode whatever may have been left of the ‘law.’”
Two words: Loretta Lynch.
The US Attorney General is a banking insider. She sat on the Federal Reserve’s Bank of New York’s Board of Directors from 2003 to 2005 under then Bank President Tim Geithner.
Obama wanted her to replace Eric Holder precisely for this reason. The Congressional duopoly was happy to have a Wall Street power player as head of the DOJ. Will anything change under the Donald or HillBilly?
Hmm. Chiang may be setting himself up for a Golden Parachute. Or he may be like the broken clock, right twice a day. He may even be an honest civil servant…but I consider that a remote possibility. We are talking about California after all. On the trucking front, CAT scale has raised their fee for weighing a truck to $11. Since they’re basically the only game in town, they can do this (and have been) more frequently. A long way from the fifty cents an axle we paid back in the early ’80s.
I dont think Chiang is willing to risk the exposure the bank will pour on him now. Good for California doing this. Jail time and public hangings should be next. Forfeiture of assets and family on the street. Funk them and their kind.
This is the king of evil ‘consumer banking’ ,Goldman of ‘investment banking’. Both are like viruses, they will kill the host.
I remind everyone that HUD….HAD… guidelines that forbid any financial institution from generating any home loans, if said institution was fined FOR, or found guilty of any fraudulent activity. FINED FOR…the escape clause for Obama to give an executive order to remove that language from HUD guidelines. And, who dressed as the mild mannered white haired if a bit over weight (lets have lunch) bank owner (again thanks to a close relationship to our leader got Wells) got that HUD clause removed. Guess, and you wonder how Wells became the largest mortgage lender?
So more fraud, and who is surprised…not me. The personnel who brought all this to the attention of ‘management’ got FIRED, long before it became public.
Take a look at the mobile Home sale business/repo business our white haired pal of down trodden American is doing there. Not to mention that salt, sugar and fat empire he has built across our overweight, obese, and diabetic America.
I guess Colin Kaepernick is exactly right. There should be some people going to jail but they are not because the law is not administered in a fair and equitable way. Most thinking people know its true but their biases blind them.
Exactly!!
re: “admitting that its employees had opened over 2 million fraudulent accounts.”
Where I live this is actually called Fraud and Breach of Trust.
The CEO tried to make it look like it was a big deal he was forgoing a huge 77million dollar bonus; a bonus based on cooked books. If this isn’t jail time then what is? Yet a poor druggie who knocks off a gas station in California and has a couple of priors gets 3 strikes your out in the crowbar hotel, forever.
A White Collar thief with 2,000,000 strikes is still wearing a suit and remains rich. Something is very very wrong. If this doesn’t herald a complete breakdown in Justice then what does?
Seems as if fraud has been committed here by WF…but has it?
Why are no charges filed? Why just a concession of bonuses and stock options done unilaterally? Why just threats of future exclusion?
I keep having the nagging feeling that there is small print somewhere that has been vetted by corporate lawyers that allow this type of behavior to go on without incriminating top management.
These politicians are barking for the benefit of the public. They will surely never bite the hand that feeds them…
Typical scenario….internal study finds that more accounts equals more fees… And it’s determined that it’s easier to get client to have multiple accounts than it is to get more clients. Then, management places strong incentives for associates to raise the accounts per client ratio from 4 accounts to 8 accounts per client. An almost impossible task if attempted to be done legally.
When the scam is revealed, the low level grunts are blamed and fired anyway. Management claims no responsibility…Rinse and repeat .
I’ve been a Wells customer for years. They re constantly tying to get their clients to open more accounts. Weather you walk into the bank, go to the ATM or bank online, the theme is constantly there to open more accounts.
For decades, up until recently, I have been a WF banking customer, too. But I got tired of not being able to call the bank for the most general piece of information without having to suffer through multiple sales pitches for numerous products. I finally pulled the plug !
-State’s pension liability tops $500 billion, Stanford study finds-http://californiawatch.org/dailyreport/states-pension-liability-tops-500-billion-stanford-study-finds-1641
I remember reading this back in 2010. It would be interesting to find out if there have been any other studies since to see the current state of these Kalifornia unfunded liabilities.
Ever since ‘Slick Willy’ repealed ‘Glass-Seagull’ allowing banks to proprietary trade creative banking has caused nothing but moral hazard as witnessed in the 2007 sub-prime toxic derivative salads banks sold worldwide. It’s ironic that the GS Act was put in place to prevent the banks from these types of transactions.
I really think at some point, there will be a pension and other liability crisis beyond one’s own imagining and the public sector employees, with all those politicians making promised they knew they couldn’t keep, will be weeping and gnashing their teeth. I can see them marching to Washington with torches and pitch forks demanding relief.
“I really think at some point, there will be a pension and other liability crisis beyond one’s own imagining and the public sector employees, with all those politicians making promised they knew they couldn’t keep”
Those pensions were perfectly affordable before the rentier class upped their pillage of the economy.
Corporatist crooks blame their victims using that kind of verbiage. You shouldn’t buy into it.
You are indeed right: reduced taxes on the wealthy and corporate welfare led to tight state budgets, which were relieved by deferring payments into the pension plans, which led to the “underfunding crisis,” which is being used as a pretext for eliminating public sector pensions entirely, and replacing them with 401Ks.
Sorry, but ZIRP and NIRP due to the politicized Central Banks inability to raise rates is the bigger part of this disaster. Pensions will end up defaulting and all those who depended on government security are going to learn a hard lesson.
Confidence in government worldwide is dropping like an anvil.
The way WF profited from this scam has very little to do with customer fees, it is almost entirely from the rise in the stock price during the duration of the scam. Because WF was seen as attracting more customer business, analysts recommended it as a growing firm, and in turn the demand increased its stock price.
While WF paid 185M in fines, Stumpf made 200M alone during the period. This is mostly from stock price target incentives. Proof that crime does pay.
From what I understand, these practices were occurring more than 10 years ago. Managers turned a blind eye. Also, in Orange County at least, there was an active swingers / wife-swapping network in the private banking division. Truly bizarre.
You’re not from California I can tell, reporting on public corruption could help a lot (there’s a local and national boycott like in Venezuela and Cuba on public corruption), Trump could win CA with national publicity of aka John R Noguez.
Aka John R Noguez¿ http://www.latimes.com/local/lanow/la-me-ln-john-noguez-20160721-snap-story.html
About Chiang, he should be in prison http://www.loscerritosnews.net/2012/11/23/obscure-elect-noguez-committee-poured-thousands-into-campaign-coffers/
They funded their party and platform on tax discount bribery and criminal invasion.
Proof : http://portal.assessor.lacounty.gov/parceldetail/4391029028
“After Chagoury bought it for $15 million in 2000 he completed a massive renovation ”
Hmmmm massive renovation?
1 property of thousands “discounted for donors”
http://www.nydailynews.com/life-style/real-estate/clinton-pal-135-million-beverly-hills-mansion-article-1.2337274
” we missed assessing some folks”
Los Angeles County District Attorney Steve Cooley called “the biggest political corruption case” in his 40 years as a criminal prosecutor.
The current CA AG KAMALA HARRIS that negotiated with Wells is running for US SENATOR, she made sure Noguez was NOT PROSECUTED WHILE SHE SAT IN OFFICE.
She should be disbarred.
I recall the wife worked at a bank years ago when we were still married. She was upset that one of her coworkers was performing “sexual favors” at a bar when a man would open an account with her. I asked “which bar” which didn’t go over too big with her….
The corporate imposed quota that there must be new signups is the devil here.
Jonathan Livingston Glass Seagull- A Story. Ought to be Big Seller in California…
After FBI Comey interview by Trey Gowdy we know corruption is rampant.Like cancer it spreads its malignant tentacles throughout its host(The US) I can not say this enough .We have Sodom and Gomorrah in the US.Why Did Lot’s Wife Turn into Salt?
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