Santa Rosa may sever ties with Wells Fargo
Santa Rosa is the latest city to begin withdrawing from its relationship with Wells Fargo & Co., citing a recent downgrade of the bank by federal regulators.
The City Council agreed Tuesday to extend its contract with the scandal-plagued San Francisco bank for another year to give it time to conduct a search for a new banking partner.
Mayor Chris Coursey seemed to wish the city could get off the Wells Fargo wagon even faster.
“Why we can’t dump this bank right now?” Coursey asked.
But the process of switching banks for an organization with $400 million in assets - and $6 million in payroll payments twice a month - is “very complicated and very involved,” said Debbi Lauchner, the city’s chief financial officer.
It takes time to solicit bids, select a new partner and switch over the city’s numerous banking accounts and financial systems, Lauchner said. These include everything from card readers at City Hall that allow residents to pay water bills to accounts that allow the state to turn over tens of millions of dollars in tax revenue.
The city’s move follows similar steps taken by cities such as Seattle, New York and Berkeley, as well as the state, which have cited controversies such as the bank’s funding of the Dakota Access Pipeline project and the 2 million accounts the bank fraudulently opened on behalf of unwitting customers.
The latter scandal has delivered a body blow to the bank’s reputation, resulting in the resignation of its CEO, the firing of 5,300 employees, a record $185 million fine and a call from Sen. Elizabeth Warren for the ouster of the bank’s entire board of directors.
The city has had an exclusive banking relationship with Wells Fargo since 2002, though most of its investments are with other financial institutions, including several local banks. City finance staff are actually pleased with the service the bank has provided over the years, Lauchner said.
Nevertheless, the city was planning to begin searching for a new banking partner when the current contract ended June 30, to make sure the city was getting a good deal on its services, Lauchner said.
Because of the work involved in switching banks, it doesn’t happen that often, she said.
But 15 years was “way too long of a period of time” for the city to not conduct a competitive bidding process for the banking services, which generate about $350,000 per year for the bank, City Manager Sean McGlynn said.
The city will hire a consultant to help it craft a “request for proposals” from financial institutions, but Lauchner said she doubts Wells Fargo will qualify.
That’s because in March the U.S. Treasury Department downgraded the bank’s community lending rating to “needs to improve,” citing the accounts scandal.
Lauchner said a state law requires local governments to keep their money in federally insured financial institutions that have at least “satisfactory” ratings by federal regulators. Losing that rating may not require divestiture, but it seems likely to disqualify Wells Fargo from consideration for the city’s future banking business.
A Wells Fargo spokeswoman pointed out the downgrade from “outstanding” to “needs to improve” was a nationwide rating for its performance under the Community Reinvestment Act, which seeks to ensure banks are meeting the credit needs of lower-income residents.
California continues to have an “outstanding” rating for the bank, she noted.
She said she did not know if the downgrade would disqualify the bank from bidding on the city’s business in the future.
Community banking activist Shelly Browning praised the council for “looking to terminate” its relationship with Wells Fargo.
She urged the city to restrict, like Berkeley recently did, future business from going to institutions that finance “environmental extractive practices” like the oil industry, private prisons or companies that engage in fraudulent behavior.
Lauchner wasn’t sure whether those restrictions would be imposed, noting that it might disqualify a large number of major financial institutions.
Council members Julie Combs and Vice Mayor Jack Tibbetts said they hoped the city would try to find ways to support local banks in the upcoming selection process.
“I don’t need to say how valuable it would be to be able to deposit locally,” Tibbetts said.
Lauchner noted there are complex regulations that, to protect taxpayer funds, require the city to only do business with institutions of a certain size that can meet the city’s other needs. If a local bank met those needs, “we certainly would consider them very highly,” she said.
You can reach Staff Writer Kevin McCallum at 707-521-5207 or firstname.lastname@example.org. On Twitter @srcitybeat.