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Wells Fargo (WFC) Suspended by Chicago over Sales Scam

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Following the sales scam, the Chicago City Council with support from Mayor Rahm Emanuel, on Oct 5, 2016, agreed to suspend business relations with Wells Fargo & Company (WFC - Free Report) for one year.

As part of the penalty, the financial services firm will be prohibited from receiving city deposits, underwriting bond issues and brokering services on the city’s behalf. Also, it would be disallowed from serving as a financial advisor or a trustee in any loan or redevelopment agreement.

The Chief Financial Officer of Chicago, Carole Brown said, “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.”

She added that the city will “move quickly to terminate the few remaining deals” it has with Wells Fargo “as long as we are legally able to terminate the transactions and as long as the termination does not negatively” impact Chicago taxpayers. One such deal is an interest-rate swap agreement for Midway International Airport.

Brown further claimed that the year-long ban is also an added punishment for the bank for not supporting the city after Moody’s Investors Service downgraded it to junk in May 2015. She said, “The only credit bank that would not renegotiate with the city was Wells Fargo.” It was the only bank that demanded payment and since then the city has chosen not to use Wells Fargo for any underwriting business.

Gabriel Boehmer, a spokesman for Wells Fargo in a media statement, said that the bank was “disappointed that the Chicago City Council has chosen to suspend a relationship with one of the nation’s safest and strongest financial institutions at a time when the city needs access to dependable financial partners. We have diligently and professionally worked with the city since 1970 to support its government, communities, and residents.”

Also, per the statement, the city business is managed in a separate division from the retail bank. Notably, in 2015, Wells Fargo “donated more than $2.8 million to 382 nonprofits, gave more than $803,700 to match our team members’ gifts to 370 educational institutions and foundations, and totaled $1.4 million in team member contributions to local nonprofits through our annual Community Support and United Way Campaign.”

In response to this, city Treasurer Kurt Summers said, “Simply put, Wells Fargo profited handsomely by defrauding its customers, including many Chicagoans. We will not reward these practices. We will also defend the people we serve.”

Notably, the ban is not a permanent one, and it could be revisited in a year.

Wells Fargo’s fraudulent activities also led both Ilinois and California to suspend business with the bank earlier this year.

Currently, Wells Fargo carries a Zacks Rank #4 (Sell). But, here are a few finance stocks worth considering now:

Farmers Capital Bank Corporation (FFKT - Free Report) : This stock witnessed an upward earnings estimate revision of 1% for 2016 over the past 60 days and its share price is up nearly 13% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

JPMorgan Chase & Co. (JPM - Free Report) : The stock currently carries a Zacks Rank #2 (Buy). It witnessed an upward earnings estimate revision of approximately 0.2% for 2016 over the past 60 days. Its share price has gained about 2.5% year to date.

State Street Corporation (STT - Free Report) : This stock also carries a Zacks Rank #2 and has witnessed an upward earnings estimate revision of nearly 0.4% for 2016. Its share price is up 9.6% year to date.

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