On Wednesday afternoon, a committee of the Seattle city council voted on a Wells Fargo divestment proposal that would end its $3 billion contract with the bank. While the proposal will still need to pass a vote by the full city council and gain mayoral approval, it seems likely to pass. Meanwhile, Minneapolis is awaiting a departmental report and will likely take a similar vote in March. While both campaigns have been framed as fossil fuel divestment, the rhetoric surrounding them hints that Wells Fargo’s illegal fees scandal may be playing a significant role as well.
Seattle had $3 billion of accounts with Wells Fargo. The bank was also responsible for handling the city’s payroll. But even a city this big is a mere fraction of the bank’s $1.75 trillion holdings. Although pipeline protesters around the country hailed the move, industry observers are more skeptical that even a city with billions of dollars of accounts could exert enough influence to shift a bank’s policies.
“The effect on industry of widespread divestment is relatively small,” says Michael Lynch, president of the energy investment firm EnegerySEER. “I just don’t see how two cities or even the top thirty cities could make that much of an impact.”
He notes that, despite the press coverage given to the protests, the total dollars divested remain small and are only indirectly related to pipeline or fossil fuels.
“It’s very hard when you have a large target like the oil industry and a relatively small group working against that,” he said. “In the end, it is hard to see how people are going to get a lot of traction.”
Divestment is the word of the day. However, statements from members of both city councils imply that oil divestment may not be the only reason to vote for Wells Fargo divestment.
Seattle Council Member Kshama Sawant called the vote a victory “against Wells Fargo, Big Business, and the corrupt financial sector.” In a statement released after the vote on Wednesday, she praised the measure as a response to the bank’s lending practices before ever mentioning oil divestment.
“Wells Fargo defrauded 2 million of their customers with subprime mortgages, disproportionately elderly people and people of color,” she wrote. “And, when regulators found them guilty of this, they scapegoated regular tellers rather than executives–as if random bank tellers around the country just happened to all have this idea at the same time!”
The same is true in Minneapolis, where a divestment proposal is currently under review. In debates this fall about Wells Fargo divestment, Council Member Alondra Cano, who sponsored the proposal, mentioned its business practices in her statements to the council.
“As we look at the ways our city invests, we want to be careful about who we are partnering with and why,” Cano said.
Part of this care is simply good money management. John Norquist, former mayor of Milwaukee and a consultant on urban design, says that from a city’s perspective, the Wells Fargo scandal is particularly troubling.
“It’s a good reason to get away from that bank. Because it’s sloppy,” he said. “Eventually they would have gotten caught.”
The concern from a more conservative perspective, he says, is that a bank engaging in fraudulent activity that could be so easily discovered by anyone checking a bank statement would also be lax in its money management. Since the price differential between various banks offering these services is small, the cost of switching banks would likely be minimal and would also likely give good publicity.
Norquist considers himself an environmentalist, but admits that divestment itself is unlikely to stop oil development.
“[With divestment,] sure, you get a headline out of it, but I’m not sure what effect it would have,” he said. “The effects of divestment aren’t on the balance sheet. The real damage is the embarrassment of having all these municipalities saying you are unworthy of investment.”
And that is damage Wells Fargo will suffer regardless of the reasons behind the account closures. After the decision from Seattle, the bank obliquely acknowledged the scandal. In a statement released after the vote in Seattle, Wells Fargo said that it was “disappointed” by Seattle’s decision, but that it was “proud of the support we have diligently and professionally provided the city as its operating bank since 1999.”
The statement also acknowledged the concerns about its sales policies and argued that it was changing its ways.
“We are taking important steps to ensure that the sales culture in our retail banking business is 100-percent aligned with our customers’ interests,” Wells Fargo said, “including ending product sales goals for everyone in the retail banking business to make certain nothing gets in the way of doing what’s right for customers.”