WFC Wells Fargo and Company

By Rachel Louise Ensign and Heather Gillers 

California Treasurer John Chiang said his office would stop doing some business with Wells Fargo & Co. over the bank's burgeoning sales scandal.

Mr. Chiang said in a letter to the bank's board that his office would suspend "its most highly profitable business relationships" with the San Francisco-based banking group over allegations of widespread illegal sales tactics.

Under the suspension, the Treasurer's office will for one year stop making investments in the bank's securities, cease using Wells Fargo as a broker for buying investments and won't hire the bank as an underwriter on certain bond deals.

The bank has been under pressure since it became clear its employees had opened as many as 2 million customer accounts with fictitious or unauthorized information. It also paid a $185 million fine and entered into an enforcement action with two regulatory agencies and the Los Angeles City Attorney's Office earlier this month.

"Wells Fargo has diligently and professionally worked with the state for the past 17 years to support the government and people of California," a bank spokesman said. "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," the spokesman added.

Mr. Chiang's letter to the bank's board took a harsh tone, saying the bank "fleeced its customers" and accusing it of "venal abuse."

At a news conference on Wednesday Mr. Chiang said Wells Fargo chief executive John Stumpf should resign and that he was disappointed by the executive's testimony last week before the Senate Banking Committee.

The Treasurer oversees a $75 billion investment pool, but the amount of business Wells Fargo stands to lose from the suspension isn't completely clear. Mr. Chiang said the amount was significant and that the state already has replaced the bank as the lead underwriter on two bond deals.

Mr. Chiang also said he would use his position on the boards of The California Public Employees' Retirement System and the California State Teachers' Retirement System, two major pension funds that own Wells Fargo shares, to push for governance changes at the bank including the split of the chairman and chief executive roles. Mr. Stumpf currently holds both.

California State Teachers' Retirement System spokesman Ricardo Duran said combining the roles of the chairman and CEO "is counter to our principles."

Calpers meanwhile said it had no specific comments about Wells Fargo, but "as a matter of practice and in principle, we support separating Chairman and CEO roles, consistent with the Calpers Global Governance Principles."

Others in the public sector also appear to be re-evaluating their relationships with the bank because of the questionable sales practices. New York's Metropolitan Transportation Authority is holding up its routine review of Wells Fargo's application to underwrite MTA bond deals while it reviews "recent developments that have been reported in the press," according to finance director Pat McCoy.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Heather Gillers at heather.gillers@wsj.com

(END) Dow Jones Newswires

September 28, 2016 17:05 ET (21:05 GMT)

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