Chicago is severing business ties with Wells Fargo & Co. for a year, after the bank paid penalties to settle claims for employees opening accounts without customers’ consent to meet sales targets.
A measure, approved by the city council on 5 October with support from Mayor Rahm Emanuel, will freeze the bank out of any work with Chicago, including underwriting its bonds. Chicago’s Chief Financial Officer Carole Brown said she would move quickly to terminate any deals the city has with Wells Fargo that it can, without paying large penalties.
“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.
Chicago is part of a widening political furor that’s emerged since Wells Fargo last month agreed to pay $185 million to resolve claims that employees opened accounts, which consumers didn’t know about, to boost sales tallies. The settlement prompted hearings in the Congress and led both Illinois and California to suspend work with the bank.
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 an e-mailed statement.
Brown noted that while other financial institutions worked with Chicago after Moody’s Investors Service downgraded the city to junk 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 it since the Moody’s cut, Brown added.
“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 an interest-rate swap agreement with Wells Fargo for Midway International Airport that officials will monitor, according to Brown.
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 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.
“This kind of conduct by a huge financial institution in America simply can’t take place without some negative implications with municipalities that have done business with it in the past,’’ Burke told the council.