Wells Fargo & Co. finally escaped a Federal Reserve asset cap that has restricted its size for more than seven years, unleashing the firm from the unprecedented punishment in a major win for Chief Executive Officer Charlie Scharf.
The Fed said in a statement Tuesday that Wells Fargo met all conditions required by an enforcement action imposed on the bank in 2018 to remove the restriction. The central bank completed its review of Wells Fargo’s remediation efforts and third-party assessments, as well as its own assessment of the bank’s corporate governance and risk management programs, it said.
The hotly anticipated verdict closes the door on nearly a decade of scandals at the fourth-largest US lender and allows the bank to pursue growth again. Since the cap was imposed in February 2018, it became the most-feared punishment in banking and caused Wells Fargo to miss out on about $39 billion in profits by one measure.
“Removal of the asset cap represents successful remediation to the required standard based on focused management leadership, strong board oversight, and strict supervision holding the firm accountable,” Michael Barr, a Fed governor who resigned as vice chair for supervision earlier this year, said in a separate statement. “All three will need to continue for the firm to have a sustainable approach.”
The Fed said that other elements of the 2018 enforcement action will remain in place for now.
Janet Yellen imposed the sanction as a dramatic final act atop the Fed. Regulators had grown frustrated with the pace of Wells Fargo’s cleanup of a series of scandals that began with fake accounts across its branch network and later multiplied across business lines.
At the time, executives told investors they envisioned completing the work required by the end of that year. Optimism faded as the Fed rejected Wells Fargo’s plans multiple times. Tim Sloan, the CEO at the time the cap was imposed, stepped down in early 2019, and the firm spent six months searching for a new boss from the outside.
Scharf joined in late 2019, and declined to ever give guidance on how soon the cap could be removed. His team submitted a plan — the first step required in the Fed’s order — in 2020. Then came implementation and a third-party review, which Wells Fargo submitted to the central bank last year.
The punishment became almost a singular focus for investors, and weighed on the bank’s valuation since it was imposed.
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