Salesmanship Gone Haywire: Tiny Bank Finds Wells Employees Spread Rumor

Competition for business in the small town of Antioch east of San Francisco must be pretty fierce - fierce enough at least for one giant bank to spread an unfounded rumor that a tiny competitor was about to fail.

A spokesman for Wells Fargo Bank confirmed that two of its business development employees spread the rumor, a violation of law in California, but stressed it was "an isolated incident" involving two employees. Wells made a private monetary settlement with the small bank.

The affair, kept secret until two weeks ago, made one-branch East County Bank the subject of rampant speculation among its customers that it was going to fail. It also spawned a hunt by management that led, improbably, to its behemoth competitor across San Francisco Bay.

The episode points up the pitfalls of overzealous marketing and is fueling the rivalry between California's megabanks and their smaller competitors.

"Overnight I've become the poster child for California's community banks," laughed Brian K. Garrett, chief executive of $40 million-asset East County.

Mr. Garrett wasn't laughing on April 4, the first day he got wind of the rumor. That morning, employees began receiving calls from edgy customers asking when the bank was going to close its doors.

Mr. Garrett assigned several employees to track down the rumor. They were led to a strip shopping center in Antioch, where small businesses had recently been called on by Wells Fargo employees trolling for new accounts.

Sometimes the Wells employee was identified as a man, other times as a woman. In any case, customers said they heard the same pitch: I see you bank at East County Bank. Did you know that they are closing their doors? Would you like to consider our small business products?

Mr. Garrett received a near-exact rendition of what the Wells employees said because one of the businesses they called on employed a part-time 911 emergency operator trained to take precise notes of what people say on the phone.

"I truly couldn't believe it," Mr. Garrett said. "Wells' average branch is twice the size of my bank. So, I just called them up and told them to stop it."

For Mr. Garrett, the episode brought up disturbing memories of six years ago, when he first took the reins at East County. Then, the bank was near failure and was forced every day to fend off speculation about closing. In six years, he has managed to turn the bank around. Today, it's well- capitalized and has been profitable for three years.

Wells, however, didn't seem too concerned about making things right at first, according to Mr. Garrett. He found 20 small business customers that had been contacted directly, and said it's possible dozens more borrowers and depositors could have heard the scuttlebutt as it spread through the business community.

"I hate lawyers," he said. "But I had to call in the attorneys just to get their (Wells') attention."

Both sides promised not to discuss the episode with the outside world. It stayed quiet for a month and a half - until a local newspaper got wind of it. Before long, bankers all over the state were blabbing about it and the San Francisco Chronicle ran a small story about the dispute in its business pages.

Only then did Mr. Garrett agree to talk about the incident.

The California Financial Code states that any person who knowingly distributes false statements derogatory to a bank's financial condition or solvency is guilty of a misdemeanor punishable by up to a year in prison and a $1,000 fine.

Mr. Garrett said he's satisfied now that Wells, which has two branches in Antioch, has owned up to the mistake, apologized, and made monetary restitution, the amount of which he did not disclose. He doesn't think it was "a corporate conspiracy," but chalks it up to what he terms an overzealous group of lower-level marketing employees ignorant of the banking business.

It's a mystery where in the Wells Fargo organization the rumor started; Wells officials declined to discuss it. Mr. Garrett said he was told it started as a stray electronic mail message ominously asserting that East County was in financial trouble. Then, he said, several business development employees in the East Bay region latched onto the report and used it in their sales pitches.

Wells would not discuss what, if any, disciplinary action it took against its employees.

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