Philadelphia City Council has introduced legislation to remove Wells Fargo & Co.as the bank handling the city’s $2 billion payroll.
City Treasurer Rasheia Johnson’s office sent City Council the results of a request for proposal for the upcoming fiscal year that recommended replacing the San Francisco-based bank with Citizens Bank. Wells Fargo will maintain the remaining $1 billion in business with the city outside of payroll, as that work was not scheduled to be up for bid.
The bill will head to council’s finance committee before being put up for a vote in front of the 17-member body.
Johnson, though, said the change was not related to the last September’s fake accounts scandal that involved the opening of as many as 2 million deposit and credit accounts without customer authorization. The accounts were created as bank staff tried to meet ambitious sales goals under intense pressure. That led to a $185 million fine, the firing of 5,300 employees and the resignation of CEO John Stumpf. Several states and municipalities have either severed ties with the bank or suspended certain aspects of relationships.
“That did not factor in,” Johnson said. “It was based on the responses we received to the RFP and the chance to save the city money.”
Johnson said the city factored in four essential things in picking Citizens — low pricing, the scope of knowledge of the city during the transition, understanding of its payroll needs and community investment in the city. She noted that by choosing Citizens, the city will save “thousands” of dollars monthly.
Councilwomen Cindy Bass, who sponsored a resolution last fall calling for hearings on how the Wells scandal impacted Philadelphians, said she believes the push from members of council to replace Wells did factor into the city's decision.
"Look at cities like Chicago and Seattle," Bass said. "We're Johnny Come Lately with this. We are sending a message with this that we will not do business with companies that do things like this."
Both Wells and Citizens declined comment.
There will be a transition period. The changeover will occur at the start of the upcoming fiscal year on July 1, but a second ordinance introduced by Bass and Jannie Blackwell would allow Wells Fargo to wrap up outstanding matters until the end of the year.
Seven banks responded to the RFP — Wells, Citizens, PNC Bank, TD Bank, Bank of America, Santander Bank and U.S. Bank. U.S. Bank does not have retail branches in the city, but the others comprise the six largest deposit takers within the city confines.
Johnson said the branch footprint was another key factor in the decision. According to FDIC data as of last June 30, Wells Fargo by far has the most deposits in the city — $13 billion, or 26 percent of all deposits — followed by PNC Bank ($8.2 billion, or 17 percent), Bank of America ($7.7 billion, or 15 percent), Citizens ($7.5 billion, or 15 percent) and TD ($4 billion, or 8 percent). But Citizens has the most branches (55) of any bank, followed by PNC (39), Wells (38), TD (22) and Bank of America (18).
There is not a specific number of branches or local deposits required to be chosen as the city’s payroll provider. But there are a series of thresholds – such as the bank being in operation for five years, profitable for the past three years and having at least $100 million in deposits. The city evaluates operational requirements, experience, cost, financial strength and investment in low-income and minority neighborhoods.
Part of the fallout from the so-called Wells Fargo fake accounts scandal including Pennsylvania Treasurer Timothy Reese's announcement on Thursday that he suspended Wells Fargo from any investment or trading activities in the state for a year.
Wells Fargo and its predecessor banks have had a relationship with the city of Philadelphia for almost 50 years. In addition to payroll, the bank is responsible for payroll deposits that average $170 million monthly and more than $2 billion annually. In addition to the payroll arrangement, Wells Fargo provides the city with investment management and lockbox services, disbursement services and letters of credit to Philadelphia International Airport and Philadelphia Gas Works.
This is not the first time the city has considered replacing Wells Fargo. In 2006, then-Councilman W. Wilson Goode Jr. proposed legislation to pull city deposits and investments out of what was then Wachovia Bank if the bank didn’t improve its lending performance in low-to-moderate income neighborhoods. But Wells Fargo had continued to hold onto the business.
Citizens has been dealing with its own scandal of sorts. The bank saw its stock drop last week after 11 former and current branch employees said they falsely produced information regarding the bank’s financial checkup program for consumer customers. The former employees, who work in five different states, told the Wall Street Journal that they and others overstated how many times they scheduled or conducted meetings with customers while struggling to meet appointment goals.
When asked about that, Bass said “there are a lot of folks doing things they are not supposed to be doing. If [banks] want to do business with the city of Philadelphia, they are going to have to clean up their act.”