Wells Fargo & Company WFC is close to the final stages of meeting its regulatory requirements to remove the $1.95 trillion asset cap, which was imposed in 2018 following its fake accounts scandal. This was reported by Reuters on Tuesday, citing sources familiar with the matter.
According to the report, the asset cap could be removed in the first half of 2025 provided that the bank resolves its risk management and compliance issues. However, the decision to lift the restriction would still require voting from the Federal Reserve's board of governors.
Last week, Elizabeth Warren, a top Democratic Senator, called for strict oversight, appealing to the Fed to keep the cap in place until the bank fully addresses its risk and compliance shortcomings.
In September 2016, troubles mounted at Wells Fargo following the revelation of the opening of millions of unauthorized accounts, along with issues in its auto-insurance business, online bill pay services and the Wealth and Investment Management segment. Following this, the bank has been slapped with numerous penalties and sanctions, including a cap of $1.95 trillion by the Fed.
WFC’s Efforts for Removal of Asset Cap
In September 2024, WFC submitted a third-party review of its risk and control overhauls to the Fed for scrutiny and approval, per a Bloomberg report. This submission was part of the bank's efforts to lift the asset cap that was imposed due to its fake accounts scandal and other governance failures.
This submission follows an extensive and time-consuming procedure during which Wells Fargo had to present a plan, seek approval (which required several attempts), implement it and then engage an external auditor to evaluate its efficiency.
WFC’s Progress Toward Solving Compliance Issues
In February 2024, the 2016 consent order issued by the Office of Comptroller of Currency related to unsafe sales practices was terminated. This development is considered an important move toward the potential lifting of the $1.95 trillion asset cap.
Under the consent order, the bank had been compelled to restructure its sales practices and include safety features to protect customers and employees. The termination of this order reflects Wells Fargo’s progress in addressing the issues that led to its regulatory penalties.
While Wells Fargo has done its best to overhaul the risk and compliance framework of the bank under the leadership of CEO Charlie Scharf, the Fed's governors have the right to decide against lifting the asset cap if they think WFC still hasn't made enough progress.
Parting Thoughts on WFC
Given that loans are among the largest assets a bank can hold, the lifting of the asset cap will mark a positive turning point for Wells Fargo. This move will allow the bank to offer loans without restrictions, supporting the top-line expansion and positioning the bank for long-term growth.
Wells Fargo’s Price Performance & Zacks Rank
Over the past six months, shares of WFC have gained 30% compared with the industry’s growth of 26.2%.
Image Source: Zacks Investment Research
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked bank stocks are Raymond James Financial, Inc. RJF and BGC Group, Inc. BGC, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RJF’s earnings has been revised 4.2% upward for 2024 over the last 30 days. Shares of RJF have rallied 36.7% over the past six months.
Earnings estimates for BGC have been revised 6.5% over the past 30 days. In the past six months, BGC shares have gained 14.1%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
