Chicago suspends Wells Fargo from city business for a year

The Chicago City Council on Wednesday approved a one-year suspension for Wells Fargo & Co from city business because of its scandal over phony accounts, joining the states of Illinois and California in punishing the bank.

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The ban includes bond underwriting, brokerage, trustee and other services the bank has provided to the city. Wells Fargo has earned $19.5 million in fees from Chicago since 2005.

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Wells Fargo staff opened checking, savings and credit card accounts without customer approval for years to satisfy managers’ demand for new business, according to a $190 million settlement with U.S. regulators and California prosecutors reached on Sept. 8.

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The bank said it’s fired 5,300 workers over the problem.

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“I expect this activity by the city of Chicago will echo around the country and allow it to be clear to other associations this actions is unacceptable,” said Alderman Edward Burke, who heads the council’s finance committee.

Illinois penalized the bank before this week while California declared a 12-month sanction against Wells Fargo, that state’s earliest financial institution, on Sept. 28. Wells Fargo was replaced by California in the aftermath of its determination as a lead underwriter on two bond sales.

On Wednesday, Wells Fargo said it would continue to serve Chicago customers and support nonprofit community agencies, educational institutions and foundations.

“Wells Fargo is disappointed that the Chicago City Council has selected to freeze a relationship with one of the country’s safest and most powerful financial institutions at a time when the city wants access to dependable financial associates,” the bank said in a statement.

Following the vote, reporters were told by Chicago Mayor Rahm Emanuel: “The city’s disappointed in Wells Fargo.”

Illinois Governor Bruce Rauner’s office, which contained Wells Fargo in a pool of senior underwriters for bond sales, said on Sunday the state wouldn’t be using the bank for debt deals “until further notice.”

Illinois Treasurer Michael Frerichs on Monday frozen $30 billion in state investment action with the bank. Those actions include investments in bank broker/dealer services and Wells Fargo debt.

Also on Wednesday, the state treasurer Denise Nappier of Connecticut told Reuters in a statement that Morgan Stanley was added as a co-bookrunner for an October bond sale due to problems at Wells Fargo.

“The inclusion of Morgan Stanley … was made in an abundance of care to help ensure the success of the sale,” the statement said. “Wells Fargo was delegated as the sole bookrunner prior to the recent disclosures of regulatory measures against the bank.”

In addition to outright sanctions, the states of Oregon and Massachusetts, along with the city of New York, have said they’d press for reforms at the bank, anticipate results of investigations while also reviewing their business relationship with the company.

(Reporting by Karen Pierog and Dave McKinney in Chicago and Hilary Russ in New York; Editing by Matthew Lewis and Daniel Bases)