Sacramento’s interim city treasurer has been cutting ties with Wells Fargo ever since the bank was outed last month for opening 2 million unauthorized consumer accounts.
On Thursday, the City Council may make that break the official city policy, eventually divesting nearly $30 million in business from the San Francisco-based financial institution. If city leaders follow through, Sacramento would become the first California city to ban the bank in the wake of the scandal.
“Banks hold a certain public trust in our society, and when they break it, they need to be held responsible,” said City Councilman Allen Warren. “We are a capital city and we need to be about the people’s business ... I think it’s showing a proper response for egregious behavior.”
Warren said he will ask other council members Thursday to support directing the city manager to refrain from new business with the bank and to divest from existing ties where it is financially sound.
The California state government took similar action last month. State Treasurer John Chiang on Sept. 28 sent a letter to the bank notifying it that he was suspending its “participation in its most highly profitable business relationships,” with the state, including bond underwriting for at least 12 months.
Illinois made a similar move, as did the city of Chicago. Seattle last week terminated a $100 million bond-financing deal with the bank, according to media reports.
Wells Fargo said Tuesday it “is disappointed that the city of Sacramento might reconsider its limited relationship with the bank. ... We have worked diligently and professionally with the city in recent years to support its government and people.”
The actions come after an investigation by a federal consumer watchdog agency that found Wells Fargo employees opened 2 million fraudulent accounts between 2011 and 2015 while under corporate pressure to meet sales goals. The bank agreed to a $185 million civil settlement in September and fired 5,300 employees involved in the actions.
Sacramento currently holds about $28 million worth of Wells Fargo bonds, according to interim city Treasurer John Colville. The city also has about $800,000 in Wells Fargo stock, he said.
Colville said the city is trying to sell the bonds, but only above a certain price through a “limit” order. Colville said some of the bonds will mature in December, while the longest remaining term on others stretches to 2021.
Colville said he would likely hold Wells Fargo stock from a “fiduciary standpoint” to minimize the city’s loss on it. Wells Fargo stock has dropped from a 52-week high of $56.34 to $45.45 on Tuesday.
Wells Fargo is also the trustee on bonds for the Golden 1 Center, which total about $90 million. Wells Fargo receives about $5,000 annually to administer those accounts, said Colville. The bank was also in the running to be the trustee on the refinancing of arena bonds in the coming months, but Colville said that is no longer the case.
The city also did business with one local Wells Fargo broker and will discontinue that relationship, he said.
Colville said he started reducing business with Wells Fargo in September because he thought it was the ethical move for the city.
“It wasn’t political at that point,” he said. “It was more of an integrity thing for me. If we can’t trust a large commercial bank to deal with retail customers, I’m concerned about it on the institutional side.”
Colville said the Sacramento ban is likely not permanent, but that he would choose to keep it in place until he sees “a substantial change ... in their methodology.”