There are many times when I have been proud to be born and raised a Californian, and this is one of those times. California Treasurer, John Chiang, today suspended many ties with the San Francisco based bank, Wells Fargo. Just last week Elizabeth Warren excoriated their CEO, John G. Stumpf, in front of the Senate Banking Committee for his "gutless leadership". Now the sixth largest economy in the world has suspended for a year almost two trillion dollars in annual state banking transactions in reaction to his company's creation of as many as two million unauthorized bank and credit card accounts. These sanctions take effect immediately and could become permanent if the bank does not institute reforms, according to Chiang, whose oversees $75 billion worth of California investments.
The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.
“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 placed their financial well-being in its care?”
Wells Fargo’s board announced on Tuesday that it was stripping Stumpf of stock award worth $41 million. He also loses his bonus this year and a portion of his $2.8 million base salary.
The clawback of both Mr. Stumpf’s compensation and that of Carrie L. Tolstedt, who until recently ran Wells Fargo’s retail banking division, was a move that members of the Senate panel suggested last week. The fact that the board decided to do so right before the House hearing does not seem coincidental.
And the move to retract a portion of Mr. Stumpf’s lavish compensation — at the time of Wells Fargo’s latest annual disclosure, he held shares and options valued at around $247 million — has not appeased some senators who criticized Mr. Stumpf last week.
This financial punishment of Stumpf is critical, but California’s action today actually punishes the bank itself, in a way that ought to get their attention.
Because California is the nation’s largest issuer of municipal debt, the move will likely cost Wells millions of dollars in banking fees.
But on top of that this action “is symbolically hurtful for Wells, which has a large presence in California, particularly in San Francisco, where its top executives work and live.”
Just last May Chiang banned the U.S. subsidiary of HSBC from participating in California’s $6.5 billion deposit program for money laundering and tax evasion.
“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.” Chiang said.
It should be mentioned that Chiang is a candidate for governor in 2018, running against popular Lieutenant Governor and advocate for marriage equality and legalization of personal marijuana use, Gavin Newsome, among others. Both men are Democrats.