Wells Fargo & Co. lost a credit-rating advantage over its biggest rivals after the Federal Reserve banned the bank from growing until it convinces authorities it’s addressing problem areas.
The lender’s long-term credit grade was cut to A- from A, S&P Global Ratings said in a statement Wednesday. The ratings company said the bank didn’t warrant a higher grade than its peers because of ongoing regulatory and reputational issues.
The Fed’s unusual sanction of the bank late Friday underscored the regulator’s frustration with executives’ progress in addressing scandals that hurt consumers. The asset cap could cost the company $400 million in profit this year and handicap it further by giving its largest competitors an advantage in pursuing new business.
“This unprecedented asset cap on a large bank underscores the continued elevated regulatory risks for Wells, and the ongoing ramifications of its retail sales practices issues,” S&P said. It also highlights “the complexities of improving compliance and operational risk controls throughout its very large organization.”
The downgrade brings Wells Fargo’s rating to the same level as JPMorgan Chase & Co. and Bank of America Corp., its two largest competitors.
The pressure on Chief Executive Officer Tim Sloan and deputies continued to mount this week, as analysts cut estimates for capital payouts and downgraded the stock. Shares dropped more than 9% on Monday.
The bank’s credit rating had been on negative watch since October 2016, a month after a scandal erupted over employees opening millions of bogus customer accounts. That ultimately led to the ousting of Sloan’s predecessor and a shake-up of the bank’s board.
— Check out Wells Fargo Moves to Resolve Another ‘Phantom Accounts’ Whistleblower Case on ThinkAdvisor.