Wells exits another consent order, leaving just the big one

Wells Fargo announced the termination of a seven-year-old consent order from the Office of the Comptroller of the Currency, marking further progress in resolving regulatory issues stemming from past scandals. RBC Capital Markets analyst Gerard Cassidy views this as positive, citing the bank's progress with regulators and potential loosening of regulations under Treasury Secretary Scott Bessent. While CEO Charlie Scharf anticipates increased focus on growth following the removal of regulatory constraints, including the remaining Fed consent order and asset cap, some, like Senator Elizabeth Warren, advocate for maintaining the asset cap until risk management improvements are demonstrated; the OCC still requires comprehensive corrective action regarding suspicious activity reporting.

Analysis

Wells Fargo (WFC) has achieved a notable step in its multi-year effort to address regulatory issues, with the termination of a seven-year-old consent order by the Office of the Comptroller of the Currency (OCC), as announced by the bank. This specific order, related to alleged violations of the Gramm-Leach-Bliley Act concerning subsidiary management, had previously barred Wells Fargo from acquiring new financial subsidiaries. Its removal follows the recent termination of a 2018 Consumer Financial Protection Bureau (CFPB) order approximately a month prior, for which the bank paid a $1 billion penalty. RBC Capital Markets analyst Gerard Cassidy views this latest OCC order termination as "positive," citing it as evidence of Wells Fargo's progress with regulators and noting Treasury Secretary Scott Bessent's comments about potentially loosening the "regulatory corset." CEO Charlie Scharf highlighted that exiting such orders, particularly the still-pending Federal Reserve asset cap, would "lift the cloud" over the bank, enabling a greater focus on growth initiatives by freeing up bandwidth from intensive internal remediation work. Despite this progress, the most impactful restriction, the Fed's asset cap, remains in place, and its removal is a key objective for the bank. There is some political opposition to lifting the cap, with Senator Elizabeth Warren advocating for it to remain until the bank demonstrates comprehensive risk management. Furthermore, Wells Fargo is not entirely free of regulatory oversight, as the OCC recently mandated "comprehensive corrective actions" to ensure proper reporting of suspicious activity, although this did not include a new monetary penalty.

Key Decisions for Investors

• The termination of the OCC consent order is a positive signal for Wells Fargo, potentially reducing operational constraints and supporting a valuation re-rating as regulatory overhang diminishes.
• Investors should closely monitor progress towards the lifting of the more critical Federal Reserve asset cap, as its removal is the primary catalyst for unlocking significant growth potential and operational flexibility, which CEO Charlie Scharf indicated would allow the bank to become less inwardly focused.
• Continued vigilance is warranted regarding any remaining regulatory scrutiny, such as the OCC's requirements on suspicious activity reporting, and the bank's ability to translate reduced restrictions into tangible growth, while also considering political headwinds that may affect the timeline for full regulatory normalization.