California, the nation's largest issuer of municipal bonds, isbarring Wells Fargo & Co. from underwriting state debt andhandling its banking transactions after the company admitted toopening potentially millions of bogus customer accounts.

The suspension, in effect immediately, will remain in place for12 months. A “permanent severance” will occur if the bank doesn'tchange its practices, State Treasurer John Chiang saidWednesday. The state also won't add to its investments in WellsFargo securities. Chiang already replaced Wells Fargo with LoopCapital for two muni deals totaling about $527 million that will besold next week.

“Wells Fargo's venal abuse of its customers by secretly openingunauthorized, illegal accounts illegally extracted millions ofdollars between 2011 and 2015,” Chiang said in a news conference inSan Francisco. “This behavior cannot be tolerated and must bedenounced publicly in the strongest terms.”

The move by California is the latest to punish the bank, whichis facing a national furor over the fraudulent accounts. SanFrancisco, the home of Wells Fargo, last week removed it from abanking program for low-income residents. Authorities including theU.S. Consumer Financial Protection Bureau fined Wells Fargo $185million on Sept. 8 for potentially opening about 2 million depositand credit-card accounts without authorization. Chief ExecutiveOfficer John Stumpf has forfeited $41 million in pay.

Federal prosecutors in New York and San Francisco have openedcriminal inquiries, a person familiar with the matter has said.Wells Fargo already faces a raft of lawsuits by fired or demotedworkers, customers and investors.

The loss of work with California will further hurt. Chiang, aDemocrat who's running for governor in 2018, oversees about $2trillion in banking transactions a year and manages a $75 billioninvestment pool. The bank served as the lead underwriter of five ofthe past 13 bond offerings from the state this year. Chiang saidthe effect on the bank is “significant” since he targeted the mostprofitable lines of business.

Gabriel Boehmer, a spokesman for Wells Fargo, said the bank has“diligently” worked with the state for the past 17 years.

“We certainly understand the concerns that have been raised. Weare very sorry and take full responsibility for the incidents inour retail bank,” Boehmer said in an emailed statement. “We havealready taken important steps, and will continue to do so, toaddress these issues and rebuild your trust.”

Wells Fargo was the second-largest underwriter of municipal debtin California in the first half of the year, according to datacompiled by Bloomberg. The firm, which trailed Citigroup Inc.,handled sales of $3.9 billion in securities, or 11 percent of totalissuance.

The bank ranked fifth in overall municipal-bond underwritingthis year through June, selling $13.7 billion in debt, for 5.9percent market share.

Chiang, who called for the resignation of Stumpf, said otherstate treasurers should also withhold business from the company.“Those that have the financial wherewithal, those who have thecourage, I think they ought to follow suit,” he said.

New York's Metropolitan Transportation Authority voted to holdoff on approving Wells Fargo as a bond underwriter until the agencycompletes its analysis of the company's practices, according toonline broadcast of a board meeting Wednesday.

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