Wells Fargo says US OCC terminated 2015 consent order

The OCC lifted a 2015 enforcement action against Wells Fargo, marking the thirteenth consent order closed since 2019 and leaving only one remaining. This development is viewed as a positive step toward resolving the bank's regulatory issues stemming from the 2016 fake accounts scandal and the subsequent $1.95 trillion asset cap imposed by the Federal Reserve, with analysts suggesting the focus now shifts to removing the asset cap, potentially in 2025. Shares of Wells Fargo were up nearly 1% following the announcement.

Analysis

Wells Fargo (WFC) has achieved a significant milestone in its extensive regulatory remediation process with the U.S. Office of the Comptroller of the Currency (OCC) lifting a 2015 enforcement action. This marks the thirteenth consent order closed by the bank's regulators since 2019 and the seventh since the beginning of the current year, leaving only one remaining enforcement action involving a fine or specific directive. This progress, under the leadership of CEO Charles Scharf, contributed to a nearly 1% increase in WFC shares in late-afternoon trading. The resolution of these orders is critical as Wells Fargo continues to operate under a U.S. Federal Reserve-imposed $1.95 trillion asset cap, a stringent penalty in place since 2018 following the 2016 fake accounts scandal which led to billions in fines and findings of "pervasive and persistent misconduct." Analysts, such as Stephen Biggar of Argus Research, interpret these developments as evidence of substantial progress and regulatory satisfaction, positioning the removal of the asset cap as the final significant hurdle. Wells Fargo anticipates that lifting this cap, potentially in 2025 according to prior reports, will enable growth in key areas like wholesale deposits and markets businesses, which have been carefully managed to comply with the restriction.

Key Decisions for Investors

• Investors should view the consistent closure of consent orders as a positive de-risking event for Wells Fargo, potentially enhancing its long-term growth outlook pending the removal of the asset cap.
• The primary catalyst for Wells Fargo remains the lifting of the Federal Reserve's $1.95 trillion asset cap; therefore, monitoring any regulatory signals or timelines related to this event is crucial for assessing future balance sheet expansion and profitability.
• Consider that the ongoing resolution of legacy regulatory issues, combined with the prospect of the asset cap removal, may warrant a re-evaluation of Wells Fargo's valuation relative to its peers, especially if operational performance remains solid and growth in restricted business lines can be achieved post-cap.