As more and more information is revealed as to the extent to which Wells Fargo has created a business model that is almost guaranteed to create fraud, states that do business with the big bank have begun to take steps away.
California's state treasurer has announced he is suspending major parts of the state's business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts.
In a letter to Wells Fargo, John Chiang asked, "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 well-being in its care?"
It is hard for state officials to explain their relationship with a bank that has very publicly admitted to creating millions of fake accounts, hurting consumers, in order to turn a quick buck. According to California State Treasurer John Chiang, the process of pulling away from Wells Fargo will be gradual as they do not want to hurt taxpayers with losses that might otherwise be avoided.
First, Schaefer said that the state won't "buy any more of their debt securities," which he said currently amount to approximately $800 million. He added that "we're not going to go out and liquidate that tomorrow morning, because we don't want to put the taxpayers of California at risk of a loss, but we're not going to renew it. And that will all be gone over the next couple of months."
Second, Schaefer said the state will no longer use Wells Fargo as a broker-dealer for buying securities. The value of that relationship is not clear, he says, but the state has "engaged in about $1.65 billion worth of trades with them, in that way, over the last 18 months. That $1.65 billion would be expected to produce high hundreds of thousands of dollars if not low millions of dollars in revenue for them."
These are not big financial losses for Wells Fargo. They are publicly humiliating losses. Illinois State Treasurer Michael Frerich announced that his office will also end the practice of buying and selling securities through the fraudulent bank.
Frerichs, who called the bank’s behavior “downright shameful,” estimated his office made about $30 billion worth of trades through Wells Fargo last year, and that cutting off that business could cost the bank millions of dollars in fees.
Wells Fargo made around $22.4 billion last quarter, that’s ¼ of a year. The fees lost under these sanctions will amount to a few million. I wouldn’t mind those few million, but Wells Fargo will probably just fire a few more lower-level workers and then call it a day.
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