Wells Fargo Scores Big Regulatory Win

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.

Wells Fargo has refused to provide guidance on when it expects the restriction to be lifted, and declined to comment again on Wednesday. On the bank's earnings call last month, Chief Financial Officer Mike Santomassimo said the company is focused on the issue and believes it is making progress, while acknowledging obstacles.

"There remains a significant amount of work to do and a series of steps required by the consent order, requiring both successful execution and implementation by us, and ultimately, a determination by the Federal Reserve as to when the work has been completed to their satisfaction," he said.

Bloomberg reported in December that a number of top executives privately expect Wells Fargo won't escape the asset cap before late this year, while key Fed officials see the process dragging into 2022 or beyond.

Dragging On

The cap, which came after a series of consumer abuses and compliance lapses, has likely cost the fourth-largest U.S. lender billions of dollars in profit by hindering its ability to grow with the industry. When it was imposed in 2018, neither the firm nor the Fed expected it to last so long, Bloomberg has reported. At the time, Wells Fargo executives publicly said they could imagine satisfying the requirements to get it lifted by the end of that year. They later extended that guidance twice, then outright withdrew it.

While consent orders typically last years, Wells Fargo's agreement with the Fed is designed for the asset cap to come off before the order is terminated in its entirety. To get the limits lifted, the bank is required to submit a proposal to overhaul risk management and governance and get the plan accepted by the Fed — the steps already completed — and then implement the plan and conduct a third-party review to the satisfaction of the regulator. Then, the full Fed board will have to agree to remove the cap.

The bank could hit additional hurdles if the Biden administration populates the Fed board with nominees who may be more reluctant to remove sanctions on the scandal-ridden lender, Kress said.

"As time goes on and as the makeup of the Fed board evolves, the task gets harder for Wells Fargo to convince the Fed to lift the asset cap," he said.

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.