Illinois yanks billions of banking biz from Wells Fargo
By Katie Lobosco
NEW YORK (CNNMoney) — The state of Illinois is suspending most of its banking relations with Wells Fargo.
Illinois is the second state, following California, to punish Wells Fargo with a one-year business moratorium in the wake of the bank’s fake account scandal.
Illinois is taking away about $30 billion worth of transactions from Wells Fargo. The amount includes money that is spent to pay state bills, in addition to its investment portfolio.
Wells Fargo earns millions of dollars from these transactions, according to the Illinois Treasurer. But a spokesman for the bank disputed the number, claiming it’s actually about $50,000 a year.
“Wells Fargo is a big financial player in Illinois and I hope to send the message that their unscrupulous practices won’t be tolerated,” Illinois Treasurer Michael Frerichs said Monday.
The one-year suspension means the state will not use the bank as a broker-dealer for any investments, nor buy any Wells Fargo debt.
The suspension doesn’t apply to some business contracts with Wells Fargo that the Treasury is obligated to do honor. It also doesn’t apply to Illinois’ pension funds or bond underwriting, but Frerichs said he urged those investment boards to review their contracts with Wells Fargo as well.
The state owns $25.5 billion of Wells Fargo debt and $1.5 billion in other assets, which it doesn’t plan to sell.
Chicago Treasurer Kurt Summers also reportedly said Monday that he too plans to divest what the city has invested with Wells Fargo, according to Bloomberg. His office did not immediately respond to a request for comment from CNNMoney.
The blows keep hailing down on the bank ever since federal regulators announced it had secretly created as many as 2 million unauthorized accounts since 2011.
Wells Fargo is now facing an onslaught of lawsuits, criminal investigations and fines of $185 million so far.
In a statement, Wells Fargo, said its business with Illinois and Chicago is handled in a division separate from the retail bank.
The bank said that it is “very sorry and take full responsibility for the incidents in our retail bank,” and that it is taking steps to address the issues that have been raised.
For now, Illinois will move its investments with Wells Fargo to other companies who will bid for the contract. The state has a list of approved as broker- dealers.
Frerichs said the state does not know, exactly, how much Wells Fargo earned on its investment activity. Wells Fargo takes a cut, but the state does not write the bank a check, he said. He estimated the cut to be in the millions of dollars for one year, but less than tens of millions.