New York considers herself an enlightened state.

From educational equity to gay marriage; NYC ID to tenant protection, both State and City have stated and lofty aspirations to protect society’s weakest and most vulnerable.

New Yorkers are tough, but we like to think we have a “true north” (call it a New York state of mind?) that allows us to navigate complexities but ultimately do the right thing, the moral thing.

Against this backdrop, New York State’s persistence in retaining Goldman Sachs and Wells Fargo within its “senior bond underwriter” rotational pool is both troubling and morally questionable.

Goldman Sachs and 1MDB

In case you haven’t heard, Goldman has been implicated in one of the largest – if not THE largest – largest governmental corruption scandal in human history.

Yes, Putin, Kim Jong-un and many African dictators have probably stolen more from their people, but Malaysia is no Russia or North Korea.

It has been reported and alleged that Malaysia’s former Prime Minister, Najib Tun Razak, through proxies, transferred over $4 billion from 1MDB, one of Malaysia’s national wealth fund, to private accounts. Mr Razak’s proxy, a businessman called Jho Low, dealt almost exclusively with Goldman Sach bankers as he plotted dubious acquisitions, loan agreements and swap transactions with the ultimate goal of siphoning funds into numerous private accounts in Switzerland, Singapore and the United States.

Goldman claims that its South-East Asian bankers went “rogue”, but no management committee is oblivious to the fact that a small satellite office in Singapore generated over $1 billion of underwriting revenues from a single client.

Based on media reports, Goldman charged 1MDB, a sovereign wealth fund mind you, nearly 5% – that’s 10x what is customary – to underwrite theoretically risk-free bonds.

If it looks like a duck, it’s a duck unless proven otherwise.

Wells Fargo – The Most Heartless Bank on Wall Street

Having covered commercial and investment banks for a few years, I know Wells Fargo bankers have a chip on their shoulder.

Their compensation is lower than bulge bracket peers. It sucks to sell investment banking services from the marquee of a commercial bank. The work is stressful given a rigid performance management system imposed by the legendary John Stumpf.

And yet, no reporter could have predicted the scope and depth of Wells Fargo mean streak and how many ethical standards it was willing to breach in order to meet sales/revenue targets.

In case you forgotten, here’s a select recap of Wells Fargo’s transgressions:

• Opened over 3.5 million fake accounts
• Forced close to 1 million automobile borrowers to purchase insurance they could not afford
• Made mortgage borrowers pay unlawful fees for rate locks and other services like identify theft products
• Intentionally steered minority borrowers to high-cost loans
• Charging student loan borrowers unauthorized fees
• Pocketed fee rebates it should have passed on to pension fund clients
• Closing small business accounts to avoid having to investigate cyber fraud. The business owners were stranded and had to jump through hoops to have their money returned
• Fired supervisors and thousands of low-level employees the bank blames for internal control lapses, probably in a bid to curry favor with the bank’s regulators

New York Needs To Send a Message

Investment banks profit from two main line of businesses with states and cities – pension fund investments and municipal bond issuance. Pension funds are usually managed by independent fiduciaries but underwriting roles are usually awarded by CFOs of states and cities on the basis of merit.

Mayor DeBlasio and Comptroller Stringer banned Wells Fargo in 2017 from municipal underwriting for various violations.

Mayor de Blasio said:

“The rules are very clear: if you fall below ‘satisfactory,’ (BuyMuni note: the Mayor was referring to the Federal Community Reinvestment Act rating or CRA Rating) we will no longer do banking business with you. I encourage Wells Fargo to quickly clean up its act and do right by the millions of customers who trust the bank with their savings. Until then, we will not be entering new contracts with the bank.”

Comptroller Stringer said: “What happened at Wells Fargo was a fraud – and there should be consequences. We need to send a message to this bank and the broader industry that ethics matter. Public trust is a must – and accountability is non-negotiable. That’s why we plan to take action. We have an opportunity to stand up and do the right thing today, and that’s a moment we plan on seizing.” 

Good for you, New York City, now let’s see the same concerted message denouncing Goldman Sachs for helping facilitate a $4.5 billion heist from one of the poorest countries in Asia.

New York State, we’re still waiting for you to do the right thing.

Contact Lisa Lopez at @LLopez@BuyMuni.com.