Chicago is severing business ties with Wells Fargo & Co. for a year after the bank paid penalties to settle claims that employees opened accounts without customers’ consent to meet sales goals.
A measure, approved by the City Council on Wednesday with support from Mayor Rahm Emanuel, will freeze the bank out of any work with Chicago, including underwriting its bonds. Chicago Chief Financial Officer Carole Brown said she would move quickly to terminate any deals the city has with Wells Fargo that would not require paying large penalties, including trustee agreements.
“We do need to send the message that the city does business with those people who perform with integrity, transparency, and who hold themselves accountable for best practices. Because as a city we have to do that,” Brown said in an interview at City Hall.
The action by Chicago is part of a widening political furor that has emerged since Wells Fargo agreed last month to pay $185 million to resolve claims that employees opened accounts consumers didn’t know about to boost sales tallies. The settlement prompted hearings in Congress and led Illinois and California to suspend work with the bank. The U.S. attorneys in New York and San Francisco opened criminal investigations.
In a letter made public Wednesday, Senate Democrats told U.S. Attorney General Loretta E. Lynch that federal prosecutors should investigate Wells Fargo’s senior executives over the bank’s unauthorized creation of customer accounts. Chief executive John Stumpf’s congressional testimony last week raises questions about whether he and other bank executives knowingly allowed illegal conduct to continue even after learning about the fraudulent accounts in 2013, according to the letter.
“Every time the Department of Justice settles a case of corporate fraud without holding individuals accountable, it reinforces the notion that the wealthy and powerful have purchased a higher class of justice for themselves,” the senators wrote. “That’s why the Wells Fargo investigation is so important.”
Wells Fargo is “disappointed” that Chicago moved to end its relationship “with one of the nation’s safest and strongest financial institutions at a time when the city needs access to dependable financial partners,’’ Gabriel Boehmer, a spokesman for the San Francisco-based bank, said in a statement.
Emanuel responded during a news conference at City Hall after the vote. “The city’s disappointed in Wells Fargo,’’ the mayor said.
Brown noted that while other financial institutions worked with Chicago after Moody’s Investors Service downgraded the city to junk status in May 2015, Wells Fargo was the only bank that demanded payment to cancel derivative trades and wouldn’t negotiate a forbearance agreement. While the bank hasn’t been an underwriter since 2014, the city has chosen not to use them since the Moody’s cut, Brown said.
“Wells Fargo doesn’t believe in the city right now,’’ Brown said. “So we’re going to work with those firms that do.’’
Chicago has a interest-rate swap agreement with Wells Fargo for Midway International Airport that officials will monitor, according to Brown. She said that the city won’t do anything to disrupt that agreement or risk a large termination payment.
City Treasurer Kurt Summers is working to divest $25 million from Wells Fargo. For his office, which manages Chicago’s $7 billion investment portfolio, this move is “probably the most punitive action that we can legally take,” Summer told the finance committee on Wednesday as he testified in support of the city’s ban.
Wells Fargo has collected about $19 million in fees from Chicago over the last decade, according to Alderman Edward Burke, chair of the city’s finance committee.