SPRINGFIELD — The state of Illinois has joined the public retribution against Wells Fargo as the bank deals with the aftermath of its admission that employees opened accounts without customers’ authorization, and that could send a warning to other financial institutions, as it potentially harms the bank's future business prospects.
In an announcement earlier in October, Illinois Treasurer Michael Frerichs said his office is suspending its investment activity with the bank for at least a year. The activity involves about $30 billion annually.
“Wells Fargo is a big financial player in Illinois, and I hope to send the message that their unscrupulous practices are not welcomed and will not be tolerated," Frerichs said at a news conference.
Frerichs said Wells Fargo could lose “millions of dollars” because of the suspended activity, though a Wells Fargo spokesperson disagreed with that figuring, saying lost revenue would be more like $50,000.
Still, using such a method to hold big corporations accountable is good and necessary, Marc J. Lane, a business attorney in Chicago, told the Cook County Record.
“Wells Fargo has taken a beating not only in Illinois, but in Congress and in the court of public opinion,” Lane said. “The fact that Illinois is suspending doing business with Wells Fargo might also have an impact on other banks if any of them are experiencing similar problems which have not surfaced yet. If another bank that faces a similar situation gets in front of the problem rather than waiting to be caught, that other bank might be treated less harshly than Wells Fargo is being treated.”
That public beating is coming from all sides, including public officials and private customers. Chicago and California also suspended investment activity with Wells Fargo. The bank - one of the largest in the country - also agreed to pay $185 million in fines. During hearings before congressional finance and banking committees, Sen. Elizabeth Warren, D-Mass., demanded a criminal investigation of CEO John Stumpf, who resigned amid the scandal. Analysts have downgraded its stock rating and the U.S. Department of Justice has issued subpoenas.
“Consumer outrage is mounting, with customers ending, or considering whether to end, their business relationships with Wells Fargo,” Lane said. “The adverse impact on the bank’s business continues to grow as Wells Fargo remains in the headlines.”
He said the resignation or termination of high-level Wells Fargo executives could demonstrate the bank is truly addressing the problem. So far, with the exception of Stumpf, only low-level employees have lost their jobs over what happened.
There’s a lot at stake. Lane pointed to examples of other investment banks and brokerage firms that faced similar public sanctions while they were prosecuted for crimes. New York City suspended Drexel Burnham Lambert, an investment banking firm, from managing a bond sale and participating in an underwriting for the city when it was being prosecuted for manipulating stock and related crimes. New York suspended E.F. Hutton, a stock brokerage firm, from participating in a bond offering after it admitted to participating in a check fraud scheme.
“Neither company has survived,” Lane said.