Exclusive-Wells Fargo assets may be raised next year, sources say By Reuters
by Nupur Anand
NEW YORK: Wells Fargo is in the final stages of the process to pass regulatory tests to raise $1.95 trillion in assets next year after fixing problems with a fraudulent accounts scam, according to three sources familiar with the situation.
The sanction could be lifted as early as the first half of 2025, one of the sources said. The three sources declined to be identified because the plan is confidential.
The Federal Reserve set the cap in 2018 and ordered Wells Fargo (NYSE:) to address failures in its governance and risk management after years of consumer abuse.
The asset freeze is considered one of the most severe penalties that US regulators can impose, and its removal requires a vote by the Fed’s board of governors.
While sources say Wells Fargo has done all the work necessary to remove the cap, governors can still keep the penalty in place if they have concerns or are not fully satisfied with the fix.
“The Federal Reserve does not have the time to move the balance sheet,” a Fed spokesman said in a statement Tuesday night.
Lifting these restrictions would be a big step forward in efforts to clean up the bank. Since the scandal broke in 2016, it has been fined billions of dollars and hit with numerous regulatory sanctions, some of which are still in effect.
Wells Fargo declined to comment. The Federal Reserve Bank of San Francisco, where the bank is headquartered, declined to comment.
The stock rose 3% in premarket trading on a Reuters report, but pared some gains and was up 1.3% before the market opened.
Shares are expected to respond well to the report that the bank is on the receiving end of this regulatory punishment, said Scott Siefers, an analyst at Piper Sandler in a report.
As part of the compliance process, the bank submitted a third-party review to the Fed to show it has improved its governance and risk management, Bloomberg News reported in September.
Wells Fargo has faced public outcry and intense scrutiny after what the Fed called “pervasive and persistent misconduct” that hurt consumers. Recently, Democratic Senator Elizabeth Warren warned the Fed not to lift the cap until the bank has fixed its risk and compliance problems.
As Republican President-elect Donald Trump takes office, Wall Street bankers expect his administration to overhaul banking regulations and loosen rules that burden money and mergers.
Wells Fargo’s chief executive, Charlie Scharf, said earlier this year that the cap is limiting its ability to take more corporate deposits and expand its trading business, when peers are growing.
The bank has been able to manage its large deposits and sell businesses carefully to keep pace, and those are areas the company can expect to grow if the restrictions are lifted, Scharf told analysts in October.
“In addition, they are general growth opportunities that we can see in all parts of the company,” he added.
Competitive banks increased while the cap was in place. JPMorgan Chase’s (NYSE: ) assets have grown by more than $1.5 trillion since the start of 2018, while Bank of America and PNC Financial (NYSE: ) have added nearly $1 trillion and nearly $200 billion, respectively .
In February, the Office of the Comptroller of the Currency ended a 2016 penalty, called a consent order, over the bank’s risky sales practices. This decision was seen as paving the way for the lifting of the import cap.
Under the 2016 consent order, the bank was authorized to change the way it provides and sells products and services to consumers, and take additional measures to protect customers and employees.
A consent order is a legal, civil enforcement action between a regulator and a bank, which usually comes with a fine and orders to correct the problem in a timely manner.
The bank still has eight open approval orders. It has shut down six since Scharf took over in 2019.
He has repeatedly stated that regulatory work is the bank’s priority, and he also pointed out that the closure of approval orders as a sign of progress.
