Sixteen months into Wells Fargo & Co. Chief Executive Officer Charlie Scharf’s tenure, he’s scored the bank’s first real sign of progress toward escaping the shackles of a Federal Reserve-imposed cap on assets.
The company has secured the Fed’s acceptance of a proposal it submitted in September to address lapses in governance and risk management, as required by a 2018 enforcement action. In doing so, Scharf paved the way for the firm to complete the next steps needed to lift the punishment: adopting the plan and undergoing an independent review.
While Wells Fargo remains many months away from having the asset cap lifted, the Fed approval is a breakthrough after three years of limbo over what has come to be regarded as the banking industry’s worst punishment. Given the extent to which the company needs to be overhauled, executives don’t expect to have the cap removed until late this year at the earliest.
“While this is a positive first step for Wells Fargo, it’s only that: a first step,” said Jeremy Kress, assistant professor of business law at the University of Michigan’s Ross School of Business and a former lawyer for the Fed’s board of governors. “It’s probably going to take a lot of time before the Federal Reserve is comfortable lifting the asset cap.”
Wells Fargo rose 5.2% Wednesday to $36.59, the highest in 11 months, after Bloomberg reported the Fed’s acceptance of the plan. The asset cap has dragged on the San Francisco-based company’s stock and profit since early 2018, with shares tumbling almost 40% in the past three years.
The plan’s approval is a positive for investors who have had years of “constantly being disappointed” regarding the asset cap, said Jason Goldberg, an analyst at Barclays Plc. Still, he also noted that it’s just one in a series of steps needed in a wide-ranging order.
“I always think about dieting — easy to announce you’re going to do it, hard to execute,” Goldberg said.
Scharf, who took the helm in late 2019, has repeatedly said that regulatory work is his highest priority. He’s made progress — in January, the bank was freed from an order tied to violations of anti-money-laundering rules — yet Wells Fargo still has 10 outstanding consent orders, with the asset cap remaining the biggest one to overcome.