Following the sales scam, concerns have again been raised for Wells Fargo & Company (WFC - Free Report) as John Chiang, California’s State Treasurer, mentioned in a letter to the bank’s Chairman, John G. Stumpf, that the bank would be suspended from participating in any banking transactions with the State. These include any investments made in Wells Fargo’s securities by the Treasurer’s office and underwriting of the sale of state bonds by the bank.
According to Chiang, Wells Fargo’s admission that its employees opened up about two million fake customer accounts without prior authorization in order to fulfill sales targets “cannot go unpunished.”
The suspension is likely to come into effect immediately and will continue for the next 12 months.
Notably, Wells Fargo has been suspended from underwriting the sale of two bonds totaling $730 million. For the first sale, Wells Fargo has been replaced with Jefferies LLC, which consisted of floating rate bonds totaling $200 million. The second sale consisted of lease revenue refunding bonds from the State Public Works Board, issued to refund certain outstanding debts of the value of $528 million. The bank has been replaced with Loop Capital Markets LLC and Raymond James & Associates, Inc.
Infuriated by the bank’s activities, Chiang said, “How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?’’
A spokesman at Wells said, “We certainly understand the concerns that have been raised. We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps.”
As part of the $190-million settlement, to which Wells Fargo agreed on Sep 8, 2016, the bank also entered into a consent order with the Consumer Financial Protection Bureau, the Los Angeles City Attorney, and the Office of the Comptroller of the Currency to provide full compensation to the victims of its misconduct. It also agreed to make changes in its policies and procedures to make sure that these practices do not occur again.
However, Chiang warned the bank in his letter that if it fails to comply with its consent order then there will be permanent suspension of all relations between the State and Wells Fargo.
The California Public Employees’ Retirement System and the California State Teachers’ Retirement System, combined, have more than $2.3 billion invested in Wells Fargo fixed income securities and equity. Therefore, Chiang also added that he will work with the Board at these pension systems to enforce reforms to ensure that such practices are not repeated.
Unfortunately, such malpractices have become very common in the banking industry, which demands strict disciplinary actions.
Of course Wells Fargo is not a good choice in the banking space. But here are a few finance stocks worth considering now:
Compass Diversified Holdings LLC (CODI - Free Report) : The stock has seen earnings estimates for the current year revising 5.3% upward over the last 60 days. Also, its share price has increased 19.8% over the last six months.
Comerica Incorporated (CMA - Free Report) : This stock’s Zacks Consensus Estimate for the current year earnings has been revised 1.9% upward over the past 60 days. Its share price has increased 26.9% over the last six months.
State Street Corporation (STT - Free Report) : This stock has witnessed an upward earnings estimate revision of 2.2% for the current year over the past 60 days and its share price is up 21.9% over the last six months.
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