Wells Fargo’s woes continue as New York City looks to suspend services

The fallout from Wells Fargo’s much-publicised corporate governance scandal shows no signs of abating, as New York City becomes the latest high-profile client to cut ties with the beleaguered bank.

 

If you’re not up to speed on Wells Fargo’s misdeeds, which cost the financial institution $185 million in fines last year and resulted in over 5,300 staff receiving their marching orders.

 

Since the news broke, the bank has been fighting a class action settlement against customers who had unapproved accounts opened in their names. The San Francisco-based lender originally set aside $110 million (£85 million) to appease affected customers but has since expanded this by a further $32 million.

 

The additional money was announced after revelations that the bank knew about unethical practices among its employees as early as 2002 – seven years longer than the damages initially covered.

New York City announces potential split

In May, New York City mayor Bill de Blasio and comptroller Scott Stringer said they were voting to stop New York City from agreeing new contracts for deposits with the bank, which holds approximately $227 million of its money.

 

Currently, Wells Fargo manages a number of financial processes for the City, including a ‘lock box’ service that holds collected taxes and fees. The bank is also a trustee for the City’s $2.6 billion Retiree Health Benefits Trust.

 

However, the organisation recently received a ‘needs improvement’ rating from the Federal Community Reinvestment Act, and mayor De Blasio said contract bans would remain in place until performance improves.

 

“The rules are very clear: if you fall below ‘satisfactory’, we will no longer do banking business with you,” he explained.

 

“I encourage Wells Fargo to quickly clean up its act and do right by the millions of customers who trust the bank with their savings. Until then, we will not be entering new contracts with the bank.”

 

Comptroller Stringer was even more cutting regarding Wells Fargo’s indiscretions. He said it’s crucial to send a message to financial institutions that ethics are important.

 

“What happened at Wells Fargo was a fraud – and there should be consequences,” he stated. “Public trust is a must – and accountability is non-negotiable. That’s why we plan to take action.”

When it rains, it pours for Wells

The New York City vote would stop agencies from entering into new contracts with Wells Fargo, and prevents them from extending or renewing any existing deals once the terms expire. The bank will also not operate as a senior book-running manager for the City’s municipal bonds for 12 months.

 

The news came after the City of Berkeley last month announced its desire to disengage from Wells Fargo’s services. The City confirmed that it will stay working with the bank until May 2018, but the institution must compete with rivals for new contracts.

 

In 2016, Democrat Congresswoman Maxine Waters urged for the bank to be broken up, claiming it had become too big to effectively manage. Writing for CNN Money, Paul Le Monica said the move could create compliance jobs and middle management positions as new components of the bank were established.

 

The changes haven’t come to pass, but the financial giant is likely to invest heavily across its corporate governance departments over the coming years in an effort to ease client concerns.

 

Our Market Reports combine our review of the prevailing conditions in the compliance recruitment market with the results of our latest employer survey.

 

Image: tupungato via iStock