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Liberation Day. Watershed moment. Pivotal milestone. Loosening of shackles. Back in the game. Outrageous giveaway. Release from regulatory jail.
Those are some of the reactions to the Federal Reserve’s removal last week of the $1.97 trillion asset cap albatross around the corporate neck of Wells Fargo & Co.
“Now they can play without having one arm tied behind their backs,” Bankrate.com analyst Greg McBride said.
“Imagine being put in the corner for bad behavior, only to see the rest of the class bust open a pinata and scoop up all the candy while you’re still in time out.”
Meanwhile, the issue at the root of the scandal — at least 3.53 million confirmed unauthorized customer checking and savings accounts, credit and debit cards beginning in 2009 and ending in October 2016 — continues to fade into the background as an ongoing concern.
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“The Fed’s decision to lift Wells Fargo’s asset cap and declare victory despite overwhelming evidence to the contrary is an outrageous giveaway to one of Wall Street’s most derelict banks,” said U.S. Sen. Elizabeth Warren, D-Mass., and the bank’s loudest congressional critic.
Warren has called several times since the scandal surfaced for Wells Fargo to be broken up and lose its national bank status.
“The entire Federal Reserve Board, including appointees of both parties, should be embarrassed,” Warren said. “Wells Fargo has a long history of violating the law, and there’s no evidence that it has changed.
“It is stunning that the Fed couldn’t wait until the company went even a full year without breaking the law before wiping its slate clean.”
About time
Several banking analysts and economists said it was about time Wells Fargo was given a cautionary green light to resume growth and acquisition opportunities.
The asset cap was established on Feb. 2, 2018, in response to Wells Fargo’s notorious fraudulent checking account scandal that erupted in September 2016. For banks, loans are considered assets.
The cap put Wells Fargo at a competitive disadvantage for 2,676 days compared with national bank peers JPMorgan Chase & Co., Bank of American Corp. and Citigroup.
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.
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.
“The asset cap was a forceful punishment designed to be a severe limitation when it was enacted,” McBride said.
“It became even more so when their large national bank competitors further raked in deposits during the COVID pandemic and the regional banking crisis of 2023.”
Lifting the asset cap is an appropriate action, said Tony Plath, a retired finance professor at UNC Charlotte who has been a vocal critic of Wells Fargo’s practices related to the scandal and rehabilitation efforts.
“Back in 2018, Wells Fargo clearly deserved extreme regulatory sanction,” Plath said.
“But there comes a time when regulatory oversight becomes cruel and unusual punishment, and in 2025 we’ve reached that time.”
A reminder
The consensus thought among analysts and economists surveyed by the Journal is that the asset cap was kept in place too long.
The initial projection was the cap extending into 2020 before being terminated.
But as more compliance issues surfaced with more regulators, such as the Securities and Exchange Commission, U.S. Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and U.S. Justice Department, the asset cap became an indefinite shadow on Wells Fargo’s profitability and reputation.
Total penalties from a series of regulatory and other federal fines add up to at least $11.14 billion.
In February 2020, the bank agreed to pay $3 billion to settle U.S. Justice and SEC investigations into fraudulent sales practices by its Community Bank division.
Meanwhile, Wells Fargo has spent at least $2.5 billion on risk management and regulatory resolution functions. It has 10,000 more employees in those areas than it did in 2018.
The Fed said in its June 2 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.”
Warren challenged the Fed that if it “is confident that Wells Fargo has turned over a new leaf, then it must release the bank’s exam reports for the last five years to the Senate Banking Committee so that Congress can review them.”
“The Fed’s descriptions of Wells Fargo are wildly out of step with public law enforcement actions and whistleblower claims.”
Scandal explained
During the 14-year active period of the 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.
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.”
Altogether, the OCC has issued fines totaling at least $67 million to 11 former Wells Fargo executives.
Carrie Tolstedt, who served about nine years as head of the Community Bank, paid in March 2023 a $17.5 million fine to the OCC for her role in the scandal.
Tolstedt was fired retroactively with cause by Wells Fargo shortly after the scandal erupted publicly in September 2016. The OCC has said Tolstedt “was significantly responsible for the systemic sales practices misconduct at the bank.”
John Stumpf, the bank’s chairman and chief executive at the time of the scandal, was allowed to retire by the bank in October 2016. Stumpf was fined $17.5 million by the OCC in January 2020. He agreed to a prohibition order, which includes a lifetime ban from the banking industry.
Analysts’ expectations
McBride projects the most notable changes in the short term “will likely be on the corporate and investment banking side, much less so on the consumer banking side.”
“They’d likely get more competitive on their credit card offering and perhaps in wealth management, but otherwise not a lot of noticeable changes to the retail customer at least in the near term.”
Truist Securities analyst John McDonald said that since Charlie Scharf was hired as chief executive in 2019, “every member of the operating committee is either new to the company or their role.”
“Wells has also taken significant steps to simplify its business mix, exit noncore businesses, fill product gaps and increase its overall efficiency.”
McDonald said that while “there is no light switch on the potential growth” of Wells Fargo since the asset cap has been lifted, “but the company will be able to expand in a controlled and linear way, especially within its corporate and investment banking, non-operational corporate deposits and its markets business.”
McDonald said all of those business lines “were hurt by the actions it took to preserve its retail deposit and wealth franchises amid the cap.”
McDonald expects Wells Fargo “to go on offense with the retail bank, credit card offering, wealth management franchise and investment banking.”
JPMorgan Securities analyst Vivek Juneja said bank officials must continue “to manage risk and maintain controls tightly as it looks to expand trading revenues further, including in financing.”
“We expect Wells Fargo to continue its recent momentum in commercial deposits growth, but these are likely to be higher cost deposits,” Juneja said.
The pursuit of growth is likely to lead to a slowing down of share repurchases.
In April, the bank’s board of directors announced plans for a new stock-repurchase program worth up to $40 billion. Share repurchases under the new authorization will commence upon the completion of its current program.
Wells Fargo reported April 11 spending $3.5 billion to repurchase 44.5 million shares during the first quarter. For fiscal 2024, the bank spent $20 billion on share repurchases.
Juneja said that “what is not clear to us is how much of this spend (on risk and regulatory expenses) needs to be retained to ensure adequate systems post asset cap lift.”
“There will also likely be some benefit to personnel costs as positions dedicated to servicing asset cap compliance are culled, but this would be tempered by continued hiring in investment banking and trading, plus increased incentive compensation from revenue growth.”
Bank of America Securities analyst Ebrahim Poonawala said removal of the asset cap “is a positive catalyst, both fundamentally and for stock valuation.” He is raising his 52-week share-price target from $83 to $90.
“We see potential for a new pool of investors who had been fatigued by the regulatory overhang to step in given Wells Fargo’s idiosyncratic growth story, room for efficiency gains in the consumer bank and potential for capital relief.”
Poonawala said that “while we don’t rule out potential for non-bank mergers and acquisitions over the coming years, we don’t expect management to sacrifice profitability of the franchise to chase growth.”
Plath said Scharf has to prove that the bank can expand, and gain market share, “in a tremendously competitive national banking marketplace by taking share away from its competitors.”
“And behave ethically with good corporate governance.”
“Will that happen? Time will tell, but I’d predict that Wells Fargo will be quite successful, at least in the Carolinas.”
rcraver@wsjournal.com
336-727-7376
@rcraverWSJ
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