Wells Fargo asset cap lifted, allowing bank to grow

NEW YORK (Reuters) – The U.S. Federal Reserve announced late on Tuesday that Wells Fargo will no longer have to operate under a $1.95-trillion asset cap that the regulator imposed on the bank in 2018, following its long-running sales practices scandal.

Wells Fargo shares rose 2.1% after the bell at $77.27.

COMMENTS

CHRIS MARINAC, JANNEY MONTGOMERY SCOTT, ATLANTA:

“This is a pretty significant step and I would be keen to see if the bank goes and buys some assets in a bid to grow, and it could signal the way the bank wants to grow.”

“I don't mean that they will buy another bank but one of the logical things to do would be to buy residential mortgages at good spreads or they could buy commercial real estate pools. While these developments will only be incremental, it will signal the areas that the bank is willing to grow in.”

KEITH HOROWITZ, BANKING ANALYST AT CITIGROUP IN NEW YORK:

“We believe that the most significant benefit of the removal of the asset cap will be on the deposit side as WFC management has noted there have been commercial deposits they’ve had to turn away due to the asset cap.”

“Another area that stands to benefit directly is trading where the asset cap has been a limiting factor in terms of growth and now WFC can look to expand capabilities and use their balance sheet more freely.”

“We also note that despite the cap, growth in trading fees has been significant (about $5 billion in 2024, up from $1 billion in 2019), so there is underlying momentum and the removal of the cap can serve as an additional tailwind.”

“The asset cap has not been the main limiting factor in terms of loan growth. Instead, we believe softer loan demand resulting from an uncertain macro environment to start the year has been a greater limiter on growth. So as we think about the implications for this year, we don’t expect the asset cap removal to spur a sudden increase in loans.”

SENATOR ELIZABETH WARREN, MEMBER OF THE SENATE BANKING COMMITTEE:

“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. The entire Federal Reserve Board, including appointees of both parties, should be embarrassed. Wells Fargo has a long history of violating the law, and there’s no evidence that it has changed. In just the past nine months, Wells Fargo has been caught violating laws related to anti-money laundering and financial crimes and failing to act in the best interests of its investment clients. Whistleblowers have repeatedly exposed how the bank is bringing back its old, dangerous sales practices.”

“If the Fed 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. 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.”

CHRISTOPHER WOLFE, MANAGING DIRECTOR, NORTH AMERICAN BANKS, FITCH RATINGS, NEW YORK:

“The asset cap forced the bank to be selective about what business it would do. Wells exited some business over the years, such as its asset management arm. So the asset cap did constrain them in some respect.”

“With the asset cap lifted, Wells will not have its hands tied behind their back. It has a very strong franchise and the asset cap was holding it back.”

“There has been a lot of new leadership brought in, which was probably necessary to address regulatory shortcomings. I think Charlie Scharf, in particular, set about to methodically address regulatory concerns. While it took time to get there, the bank can now operate normally.”

MAC SYKES, PORTFOLIO MANAGER, GABELLI FUNDS, NEW YORK:

“This shouldn't be a surprise because we knew that it was coming but it removes a major regulatory overhang. It provides them a reputational boost which is helpful, provides more and different capital allocation opportunities and allows them to grow their balance sheet. This also demonstrates the leadership path that Charlie Scharf has taken with this company to make sure it's streamlined, more competitive and regulatory compliant.”

ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:

“This is bullish for the stock and for the market because whenever you have a situation where stress is reduced or taken away from the system, especially for one of the largest banks in the country, that bodes well for the market and for the economy. The reason why those measures were in place was the Fed… was worried about too much risk. The fact that they're no longer worried about that tells us that the bank is in strong hands, the bank is operating very well and, most importantly, the bank has earned the right to get those restraints removed. That adds confidence.”

“From an investing standpoint, that bodes well for the stock and for the market. All things being well, a healthier financial system is good for the market and good for the economy.”

DAVID WAGNER, HEAD OF EQUITIES, PORTFOLIO MANAGER, APTUS CAPITAL ADVISORS LLC, FAIRHOPE, ALABAMA:

“This is pretty big news to me. It will potentially increase the company's overall valuation as it continues to trade at a discount relative to peers. It gives them another lever to equal the playing field from a growth perspective. This is a pretty big win for Charlie Scharf. They finally escaped this Federal Reserve's financial asset cap that restricted the size (of the company) for quite some time.”

STEPHEN BIGGAR, BANKING ANALYST, ARGUS RESEARCH, NEW YORK:

“This marks the end of a painful period for Wells Fargo, and also serves as a reminder for financial institutions to be sure customer interests are always aligned with growth goals.”

(Compiled by the Global Finance & Markets Breaking News team; Edited by Rod Nickel)