SACRAMENTO--California Treasurer John Chiang said Wednesday the state will suspend several key banking relationships with Wells Fargo (WFC) to sanction the firm following allegations of "fleecing its customers."

Serving up the first direct blow to Wells Fargo's business following this month's allegations of fraud at the bank, the treasurer will halt investments in Wells Fargo securities for 12 months. During that time, the state's treasurer will also stop using Wells Fargo as a broker-dealer for buying investments and not use Wells Fargo as an underwriter for California state bonds where the treasurer assigns the role. California's treasurer is one of the largest bond issuers in the nation. The California State Treasurer's office oversees $2 trillion in banking transactions and handles an investment fund valued at $75 billion.

"Wells Fargo's fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed," Chiang said in a statement. In addition to being the state’s treasurer, Chiang also sits on the board for state’s massive public pensions including California Public Employees’ Retirement System and California State Teachers’ Retirement System. Chiang says he will press for additional corporate reforms at the company, including a review of executive pay and new ethics reporting processes.

Wells Fargo is still reeling from a scandal where thousands of bank employees opened accounts for customers without their consent. Hundreds of thousands of accounts, some think upwards of 2 million, were opened although the actual number hasn't been verified. Wells Fargo says it has reimbursed fees incurred and more than 5,000 employees were fired. California's move comes as the company's CEO John Stumpf is expected to tell lawmakers Thursday that the bank will act more quickly than originally planned to reform its sales practices.

Some of the pain from the widening scandal is starting to sting. Late Tuesday, the company said two key executives, including Stumpf, agreed to allow the bank to claw back gains. Stumpf will surrender $41 million in unvested stock awards while a senior executive in charge of community banking will surrender $19 million in unvested stock awards.

Losing a key business account, though, stands to hurt the company's business. "Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California. Our highly experienced and proven government banking, securities and treasury management teams stand ready to continue delivering outstanding service to the state," says Wells Fargo spokeswoman Jennifer Dunn. "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, and will continue to do so, to address these issues and rebuild your trust.”

Wells Fargo's CEO Stumpf will find himself again in the hot seat Thursday, when he's scheduled to testify before the House Financial Services Committee. Stumpf is expected to tell lawmakers the bank will speed up its plan to reform its sales practices, according to written remarks obtained by USA TODAY. Some have suggested that the company's aggressive sales goals for employees pressured them to take extreme measures to meet goals or risk being terminated. The goals will be eliminated by Oct. 1, a significant acceleration from the original target of Jan. 1, 2017.

“While we continue to determine the details for 2017 goals and incentive plans for the retail bank, we are taking steps to accelerate the removal of product sales goals effective Oct. 1, 2016, and put greater emphasis on delivering the best customer experience. We are also making adjustments to ensure that as we make changes, we maintain fair and consistent compensation for retail bank team members and leaders,” Dunn says. (Source: USA Today)

Story Date: October 2, 2016