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Wells Fargo Sold Assets to Remain Under Fed Asset Cap: Report

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Wells Fargo sold hundreds of millions of dollars in assets earlier this year in order to meet the $1.95 trillion asset limit imposed on it by the Federal Reserve after its fake-accounts scandal, according to a Wall Street Journal report.

As customers took loans and drew down hundreds of billions of dollars on their credit lines in response to the pandemic, this increased the size of the bank  which then moved quickly to sell assets and stay beneath the Fed’s asset cap, people familiar with the matter told the paper.

The bank’s sales of receivables were about 10% above its average level, a source told the Journal. The asset sales weren’t made at a loss, another person said.

For instance, the bank sold assets related to financing that helps large companies, including Walmart, pay suppliers, manage cash flow and the like. 

Wells Fargo “ramped up its sales of these assets more than usual in the second half of March and early April,” according to the Journal. 

In early April, the Fed opted to “temporarily and narrowly modify” the asset cap imposed on Wells Fargo so the bank could lend more to Main Street.

The news on the bank’s asset sales comes two days after Sens. Elizabeth Warren, D-Mass., and Brian Schatz, D-Hi., demanded Wells Fargo CEO Charles Scharf respond to questions about the bank’s “pausing” of mortgage payments without borrowers’ consent as part of a program tied to fallout from the coronavirus.

Wells Fargo did not respond to a request for comment as of press time.

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Recent Results

The bank reported its first quarterly loss since 2008 on July 14, with its loan-loss provisions rising sharply to $8.4 billion due to the coronavirus pandemic.

Wells Fargo lost $2.4 billion, or $0.66 per share, vs. profits of $6.2 billion, or $1.30 per share, a year ago and $653 million, or $0.01 per share, in the first quarter.

Its total revenues were $17.8 billion in Q2, up slightly from $17.7 billion in Q1, but down from $21.6 billion in the year-ago quarter.

The bank’s financial advisor headcount dropped to 13,298 from 13,450 as of March 31 and from 13,723 a year ago. (The bank had 15,086 registered reps on Sept. 30, 2016, when it began making headlines for its fake-accounts scandal.)

The wealth unit’s net income plunged 70% from a year ago to $180 million in Q2’20.

Wells Fargo CEO Charlie Scharf says the bank will begin trimming costs in the second half of 2020 and plans to cut at least $10 billion of expenses. “This cannot continue,” Scharf said after the bank released its second-quarter earnings. 

The bank, which has some 266,000 workers, is aiming to cut thousands of job starting this year.

— Check out Sen. Warren Questions Wells Fargo, Again on ThinkAdvisor.