July 27, 2017 

By Dr. John Warren 

Intergovernmental Affairs 

Contributing Writer 

 

The fake accounts set up in the name of over 3 million bank customers since 2002, and the lowering of the Wells Fargo Bank rating with the Office of the Comptroller of the Currency in the U.S. Treasury Department from “satisfactory” to “needs improvement”, has had significant consequences resulting in the loss of billions of dollars in municipal deposits. When a banks ratings change under the Community Reinvest­ment Act from “satisfactory” to “needs improvement”, cities will often withdraw their deposits. This action has a part of a trend with a number of cities from Seattle to San Francisco, Albuquerque, New Mexico, and to Raleigh, North Carolina.

 

The many woes of Wells Fargo, growing out of fake accounts, and violations of federal laws, fines and class action lawsuits, have reached beyond “bad banking practices” to the kinds of financing Wells Fargo provided to such projects as the Dakota Access Pipe Line (DAPL).  Members of the Standing Rock Sioux tribe and organizers of the protest against the DAP, initiated actions in a number of cities starting with the Seattle City Council, to withdraw municipal deposits, and effectively bar local governments from investing with Wells Fargo Bank because of its financing of the DAPL.

 

In February of 2017, the Seattle City Council voted to sever its relationship with Wells Fargo Bank as of 2018 stopping the flow of over $3 billion through the institution each year. The reason given, because of the banks “dishonest business practices” as well as its pipeline financing.

 

On May 31, New York City became another city removing the bank’s deposits and participation in its General Obligations and Transitional Finance Authority bond sales. This action will deprive Wells Fargo Bank of billions of dollars in municipal deposits in the coming year.

 

Since then cities like San Fran­cisco, Los Angeles, Bellingham, Raleigh, N.C., Albuquerque, and even Berlin, have made DAPL divestment a reality against Wells Fargo in their cities. In California, officials in the cities of Davis and Santa Monica either have or are moving to withdraw deposits from Wells Fargo.  Davis is or will be withdrawing $124 million in deposits. The city of Santa Monica plans to take $1billion from Wells Fargo Bank.  The City of Los Angeles already has won a $142 million class action lawsuit. The City of Albuquerque, New Mexico is withdrawing over $500 million in investment with Wells Fargo as of June 2016.

 

On July 14, 2017, second quarter profit reports revealed that while New York based Citigroup's profits fell 3 percent, as the bank covered bad loans, profits rose for Wells Fargo and JP Morgan Chase due in part to rising interest rates. Wells Fargo's profits grew by 5 percent to $5.8 billion, or $1.07 a share over the $1.01 per share expected. Wells Fargo’s net income climbed 6 percent to $12.5 billion.

 

Let’s look at the bigger picture of Wells Fargo Bank which trades on the New York Stock Exchange as WFC. Wells Fargo is a diversified, community based financial services company with $2.0 trillion dollars in assets with offices in 42 countries and territories to support customers who conduct business in the global economy. The company has approximately 273,000 employees and claims to serve one in three households in the United States.

 

It would appear against this back drop that: (1) the settlement last September with federal regulators of fines totally $185 million dollars for violations of Dodd-Frank banking laws; sections of Sarbanes Oxley prohibiting retaliation against whistleblowers, and violations of the overtime provisions of the Fair Labor Standards Act covering hours of work; would represent significant losses; (2) The $142 million class action lawsuit against Wells Fargo by the Los Angeles City Attorney's office, recently approved by a federal judge, is not all that its seems. It is reported that all except about $25 million dollars of that payout will go to lawyers and administrative cost. Then Wells Fargo customers will be paid for out of pocket losses, such as fees from fake accounts. The balance of anything left will be divided among customers based on how many and what kinds of accounts.

 

The bank has agreed to put more money in the settlement fund if less than $25 million is left for wronged customers after paying lawyers, expenses and out of pocket cost.

 

Of the payout last September to federal regulators, already mentioned in this article, $3.26 million was repaid in fees to wronged customers and an additional $1.8 million has reportedly been paid to cover complaints from customers about fake accounts.

 

Let’s remember that when we look at the increased profits of Wells Fargo reported for the second quarter of this year,  and the total worldwide assets of over $2.0 trillion dollars and 273,000 employees, the 5,000 employees fired over the fake accounts seems insignificant. These facts might make the bank look untouchable in terms of financial loses. But don’t forget that the more than $3 billion dollars that municipalities have agreed to pull in deposits from Wells Fargo starting in 2018, is not yet a part of the banks profit and loss statements.

 

None of these items address the communities of color who have been ignored by Wells Fargo outside of “cherry picking” a few business entities and making no real good faith effort to recover the confidence of many who have been turned away.

Category: Business



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