Opening Day is still six weeks away, but Council members Jim Oddie and Malia Vella already have chosen their seats for the season.
They’ve picked the grandstand.
With the cheers of the anti-Trump crowd for spearheading the effort to get Council to declare Alameda a “sanctuary city” still ringing in his ears, Mr. Oddie now is seeking to ingratiate himself even further with the liberal wing – as distinguished from the labor wing – of the local Democratic party. This time, he has trained his sights on the Wells Fargo Bank, the bête noire of Senators Elizabeth Warren and Bernie Sanders. And Ms. Vella has taken up arms right alongside him.
This Tuesday, the two Council members will present a Council referral designed to get the City to stop doing business with Wells Fargo. They want Council to direct staff to issue a request for proposals for banking services that excludes Wells and to refrain from buying any Wells securities for three years.
The referral instructs staff to “identify” the City’s current accounts and investments with Wells Fargo, but Mr. Oddie and Ms. Vella could have found out the information themselves if they’d read the quarterly investment report presented to, and unanimously approved by, Council just a month ago. According to that report,
- The City maintains four deposit accounts with Wells Fargo. The largest – a general checking account – had a balance as of June 30, 2016 of $34.6 million.
- The City owns three corporate notes issued by Wells Fargo. The total book value of these securities as of June 30, 2016 was $1,573,114, which represents approximately 1.16 per cent of the City’s total $187.7 million investment portfolio.
So why has Wells Fargo found itself in our two Council members’ crosshairs?
Well, the short answer is that, if you’re an ambitious local politician seeking to bolster your liberal credentials, there’s no better way to achieve that goal than by taking up a cause championed by the two leading lights of the left, Senators Warren and Sanders.
Wells Fargo has become a favorite punching bag of the two senators ever since it agreed last September to pay penalties totaling $185 million to the Consumer Financial Protection Bureau, the Office of the Controller of the Currency, and the Los Angeles city attorney to settle charges relating to illegal consumer banking practices. Ms. Warren made national news by raking the bank’s soon-to-be-ousted-CEO, John Stumpf, over the coals at a Senate committee hearing, and, not to be outdone, Mr. Sanders blogged that the bank was built on fraud and ought to be dismembered (“broken up” is the phrase he used). More recently, the Bern has begun excoriating Wells Fargo for lending funds for construction of the Dakota Access pipeline. (We couldn’t find any statement on this issue by Senator Warren, but we’re sure she’d concur with her colleague.)
Mimicking Senators Warren and Sanders by going after Wells Fargo is a surefire way for Mr. Oddie and Ms. Vella to earn huzzahs on the left. Now, the Merry-Go-Round doesn’t necessarily object to posturing and pandering by politicians – it’s in their DNA. But we do insist that, where those seeking applause also are suggesting legislation, their proposal should produce some public benefit, if only an intangible one. And, like a physician, it should do no harm.
(It can be argued that the “sanctuary city” resolution met the first part of this test. True, it didn’t have any practical impact on the conduct of City business. Indeed, when we asked Police Chief Paul Rolleri what actions, if any, the police department had taken to comply with the resolution, he responded: “We have not taken any action, because our existing policy compliance was sufficient to comply with the resolution.” But, based on what we’ve read in the papers and heard from the pulpit, the resolution did provide a measure of solace to people who were, as City Manager Jill Keimach described it, living in fear. Maybe that’s a public benefit sufficient to justify the accompanying political grandstanding.)
But it is difficult to discern any benefit to the public that the referral submitted by Mr. Oddie and Ms. Vella would confer, regardless of how much approbation from the left it might engender for its sponsors. In fact, the referral, if implemented, actually may harm the public interest.
The two Council members would be kidding themselves (and their constituents) if they claimed that, by closing its Wells Fargo checking account and scorning Wells Fargo notes, the City of Alameda or any other municipality would force the bank to change the way it does business.
For commercial banks, checking accounts aren’t money-makers; they’re vehicles for attracting deposits. As of December 31, 2016, Wells Fargo’s total deposits were $1.3 trillion. If the City of Alameda chose to take its business elsewhere, the bank would lose all of $34.6 million of this base. And even if every city with a Wells Fargo account in every blue state in the country followed Alameda out the door, the pimple on the bank’s butt might get bigger – but it would still be a pimple. It’s not going to hurt so much that the bank feels any need to lance it by modifying its business practices.
Similarly, a decision by the City of Alameda or any other city not to buy notes issued by Wells Fargo for three years is not likely to inflict corporate pain sufficient to induce the bank to change its ways. The investment policies governing many fiduciaries – pension plans come to mind – restrict permissible investments in corporate securities to bonds and notes rated investment-grade. And there aren’t that many issuers whose debt securities fall into this category. So the market for Wells Fargo paper will remain, well, robust even if the City leads an exodus of municipalities away from the bank’s future securities offerings.
By the same token, if Council does what Mr. Oddie and Ms. Vella want it to do, there may be adverse financial consequences for the City.
We’re not that concerned about the ability of the City’s money managers to find another place to park the $1.6 million now invested in Wells Fargo notes if they are prohibited from buying the bank’s securities in the future. (In theory, limiting investment choices may increase costs or decrease returns, but it’s only $1.6 million, folks.) Moving the City’s checking account to another financial institution is another matter.
City Finance Director Elena Adair confirmed our suspicion that “changing [the] banking service provider for the City involves significantly more than changing someone’s personal bank account.” She continued:
While it is possible to do, it would be a significant undertaking. The array of services that Wells Fargo provides to the city is wide. Examples of the services include but are not limited to positive pay, wire transfers, ACH services, reporting and reconciliation capabilities, stop payments, lockbox, merchant services, etc. I am unable to respond how much it will cost at this time. However, the implementation would involve significant staff time not only in the Finance Department, but in other City Departments.
We would hope that someone on Council will ask Ms. Adair to study this issue further before the body votes to cut ties with Wells Fargo. It may have been easy to dismiss concerns about adverse financial consequences during the discussion about the “sanctuary city” resolution. Maybe the City of Alameda would escape punishment because it is too small to register on Donald Trump’s radar. In any event, to paraphrase Ms. Vella, “you can’t put a price on civil liberty.” But the potential costs of transferring the City’s operating accounts are real, not speculative, and, at least as far as we’re concerned, no high-minded principle can be invoked to justify ignoring them.
And now we come to the most basic problem we see with the action being urged by Mr. Oddie and Ms. Vella: If Wells Fargo’s sins disqualify it from holding the City’s money, no alternatives may be available that satisfy the requisite standards of political purity. And if they’re not, what’s the point in rejecting one malefactor only to lie down with another?
Take the list of household names in the banking industry: None of them can claim to be a paragon of liberal virtue – at least according to the “Violation Tracker” published by the Consumer Research Project, whose avowed purpose is to “assist community, environmental and labor organizations” in “identifying information that can be used to advance corporate accountability campaigns.”
Bank of America? Nope – $56.7 billion in penalties assessed, and settlements paid, for consumer-related offenses since 2010.
Chase? Nope – $28.4 billion in penalties and settlements.
Citibank? Nope – $15.4 billion in penalties and settlements.
U.S. Bank? Nope – a mere $544 million in penalties and settlements.
Likewise, Wells Fargo is not the only bank involved with the Dakota Access pipeline. In fact, a total of 17 banks have lent funds for construction of the pipeline, and Wells Fargo’s $120 million loan amounts to only 4.8 per cent of the financing package. The other lenders include all of the household names cited above. Moreover, in addition to the construction financing, 35 banks have provided lines of credit totaling $7.75 billion to build out the oil and gas infrastructure. Again, the consortium includes all of the usual suspects.
Once you scratch all of the major banks off the list of “acceptable” financial institutions with whom the City of Alameda may do business, who’s left? Our thoughts turned immediately to community banks, since we have one of those right here in Alameda – the Bank of Marin (formerly the Bank of Alameda) – and we’re pretty sure it hasn’t been fined by the CFPB or the OCC.
But don’t expect Mr. Oddie or Ms. Vella to propose sending the City’s business to the Bank of Marin. The bank’s consumer practices might pass muster with the liberal wing of the local Democratic party – but its board of directors wouldn’t make it past the labor wing.
One of the Bank’s directors is none other than City Treasurer Kevin Kennedy, the scourge (with City Auditor Kevin Kearney) of the Alameda firefighters’ union. Organized labor spent $4,155.16 on a spiteful campaign to unseat the Treasurer last November. It turned out to be money wasted – Mr. Kennedy won 79.8 per cent of the vote – but imagine how IAFF Local 689 president Jeff DelBono would react if two of his handpicked Council members pushed through a resolution that resulted in sending $34.6 million in business to Mr. Kennedy’s bank!
So if banks, large and small, wouldn’t be eligible to hold the City’s money, where can it go? Maybe the Teamsters Union has a credit union that offers checking accounts. (We presume Ms. Vella would know.) If not, the City might just as well hold its nose and stick with Wells Fargo.
It is understandable that Mr. Oddie and Ms. Vella each would strive to establish a reputation as something other than the candidate of organized labor. (Although it’s a hard moniker to shake when you’ve taken as much union money to get elected – $23,544.90 in direct contributions for Mr. Oddie and $33,185.67 in direct contributions for Ms. Vella – as these two Council members did.) Throwing down the gauntlet to Donald Trump was one step for Mr. Oddie to take toward attracting acclaim from Alameda’s liberal ideologues. Bashing a big bank may be another step in the same direction for him and Ms. Vella. But we just hope that while they’re scrambling to lead the leftist parade, the rest of us don’t get trampled over.
Unfortunately, hope may be all we have. The current Council may very well accept the referral and vote to sever ties with Wells Fargo despite the absence of anything to be gained, and the risk of something to be lost, from such a move. Council members Marilyn Ezzy Ashcraft and Frank Matarrese both are gearing up to run for mayor in 2018. Do either of them want to become vulnerable to being attacked as “anti-progressive” if they don’t jump on the stagecoach Mr. Oddie and Ms. Vella want to drive over Wells Fargo? If not, you can count four votes for political grandstanding. We fear it won’t be the last time.
Disclosure: Sullwold & Hughes has represented Wells Fargo Advisors, LLC in investment-related litigation.
Council referral: 2017-02-21-oddie-vella-cc-referral-re-wfb
Quarterly investment report: 2017-01-17-ex-1-to-staff-report-quarterly-investment-report
Dakota Access pipeline: food-water-watch-article-re-dakota-access-pipeline-funding; excerpt-from-wells-fargo-statement