Wells Fargo can grow again with lifting of asset cap

The Federal Reserve said Tuesday it has ended its final consent order over Wells Fargo & Co., allowing the bank to grow beyond the $1.95 trillion asset cap that has restricted the bank since February 2018.

The asset cap was established in 2018 in response to the bank's fraudulent checking account scandal that erupted in September 2016. For banks, loans are considered assets.

The asset cap has put Wells Fargo at a competitive disadvantage compared with its national bank peers JPMorgan Chase & Co., Bank of American Corp. and Citigroup.

Over the past seven years, JPMorgan Chase has emerged as the nation's largest bank at $4.36 trillion, while Bank of America is at $3.35 trillion and Citigroup at $2.57 trillion.

Fed Chairman Jerome Powell said in 2021 the asset cap would remain until the Fed is confident that Wells Fargo has resolved a series of internal governance and risk-control issues.

The Fed said in Tuesday's three-paragraph statement it had "determined that Wells Fargo has met all the conditions required by the 2018 enforcement action for removal of the growth restriction."

Among the conditions for removal, Wells Fargo was required "to improve its governance and risk management program, and complete a third-party review of these improvements, for the growth restriction to be removed."

"The removal of the growth restriction reflects the substantial progress the bank has made in addressing its deficiencies and that the bank has fulfilled the conditions required for removal of the growth restriction."

However, the Fed added that other provisions in the 2018 enforcement action would remain in place "until the bank satisfies the requirements for their termination."

Wells Fargo chief executive Charlie Scharf was hired in late 2019 in large part to guide the bank through resolving altogether 14 regulatory consent orders.

Seven of those orders have been terminated since the start of 2025.

"The Federal Reserve's decision to lift the asset cap marks a pivotal milestone in our journey to transform Wells Fargo," Scharf said. "We are a different and far stronger company today because of the work we've done."

Scharf announced as part of recognizing the ending of the final consent order that all full-time employees will receive a special $2,000 award that will be provided to most as a restricted stock grant.

As part of resolving the 14 consent orders, Scharf said Wells Fargo has "changed and simplified our business mix, and we have transformed the management team and how we run the company."

"We have been methodically investing in the company's future while improving our financial results and profile."

Scharf said Wells Fargo' plans "to further increase returns and growth in a deliberate manner supported by the processes and cultural changes we have made."

Scharf said on May 28 that Wells Fargo addressed the customer account scandal by "literally scaling back almost everything that we were doing to drive growth in the retail system, and then rebuild it from the bottom up to drive growth in the retail system ... so when we turn things back on that we can grow properly."

"We had been focused on preserving market share," Scharf said.

"Now it has gone to what do we need to do to increase market share. It will be a multi-prong effort of how we get there."

Scharf cited changes to compensation plans, divesting product categories and businesses deemed not core to its overall financial structure, serving more less-affluent customers, increasing marketing spending and revamping its branch setups while enhancing digital product and service offerings.

Analysts' response

Analysts said they are curious as to which direction Wells Fargo will attempt to grow revenue and market share.

"I would expect the company immediately addresses its balance sheet liquidity position to see where it can add assets with reasonable spreads to its low cost of funds," said Christopher Marinac, senior banking analyst with Janney Montgomery Scott.

"Wells Fargo has funding costs — combined deposits and borrowings — of 2.26% which compares with Bank of America at 2.80%, JPMorgan Chase at 2.62% and Citigroup at 3.79%," Marinac said. "It has the lowest cost of funds among these large national banking companies.

"I anticipate new revenues generated this month, and then a full quarter of stronger balance sheet growth and additional revenue thereafter."

Tony Plath, a retired finance professor at UNC Charlotte, said the accelerated pace of ending seven consent orders this year is "largely due to the Trump administration's control of today's bank regulatory infrastructure."

That represents an intriguing twist given most of the consent orders were issued by federal financial regulators during the first Trump administration.

For instance, President Donald Trump said in December 2017 that he did not support easing up on sanctions and penalties against Wells Fargo related to the scandal.

"There is often some subjectivity in terms of deciding whether the terms for lifting a decree have been met," said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University.

"It is possible that the Trump administration is taking a more conciliatory approach towards Wells Fargo's compliance efforts than the Biden administration did."

Plath said a freed-up Wells Fargo "is going to bring a whole new level of competition to the North Carolina banking industry."

"Who's most vulnerable here? Truist, and (top executive) Bill Rogers had better bring his A-game to town."

Scandal explained

During the 14-year active period of the fraudulent customer account scandal, Wells Fargo collected millions of dollars in fees and interest to which it was not entitled, harmed customers' credit ratings, and unlawfully misused customers' sensitive personal information.

Examples of fraudulent accounts included: using existing customers' identities — without their consent — to open accounts; forging customer signatures to open accounts without authorization; creating PINs to activate unauthorized debit cards; and moving money from millions of customer accounts to unauthorized accounts.

Other examples included: opening credit cards and bill pay products without authorization; altering customers' contact information to prevent customers from learning of unauthorized accounts and to prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys; and encouraging customers to open accounts they neither wanted nor needed.

Wells Fargo acknowledged in 2017 the opening and issuing of at least 3.53 million unauthorized checking and savings accounts, debit cards and credit cards between 2009 and October 2016.

Although the bulk of the fraudulent accounts were established in California and Arizona, there were media reports of 38,722 unauthorized customer accounts being established in North Carolina and 23,327 in South Carolina.

Wells Fargo has admitted that from 2002 to 2016, the sales pressure of trying to increase the number of product accounts per customer known as cross selling led Community Bank personnel — primarily tellers and other branch employees — to open millions of accounts and other financial products that were unauthorized or fraudulent.

"In the CFPB's 11 years of existence, Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise," former CFPB director Rohit Chopra said in a statement.

"The list could go on and on, from defrauding the government to labor abuses and more."

In February 2020, the bank agreed to pay $3 billion to settle U.S. Justice Department and Securities and Exchange Commission investigations into fraudulent sales practices by its Community Bank division.

Total penalties from a series of regulatory and other federal fines add up to at least $11.14 billion.

rcraver@wsjournal.com 336-727-7376 @rcraverWSJ