Wells Fargo's latest regulatory rebuke may prolong asset cap punishment, analysts say
New throughout
By Manya Saini and Nupur Anand
Sept 13 (Reuters) -Wells Fargo's WFC.N latest regulatory rebuke for insufficient efforts to combat money laundering will probably prolong another ongoing major regulatory punishment that has limited growth at the bank, analysts said.
Despite some progress fixing issues from a 2016 fake accounts scandal, the fresh compliance problems signal Wells Fargo's cleanup efforts may be far from over, and as such the period the bank must stay under an asset cap imposed by the U.S. Federal Reserve is now likely to be extended.
The Office of the Comptroller of the Currency said on Thursday it was putting restrictions on Wells Fargo's ability to expand into risky businesses after it found the bank had insufficient safeguards against money laundering and other illegal transactions.
"This is very surprising given that Wells Fargo had resolved a consent order for anti-money laundering quite recently, in January 2021, after many years of work and expense," Vivek Juneja, an analyst at JPMorgan Securities, wrote in a note.
The order says Wells Fargo will need approval from the OCC to introduce riskier new products or services, as well as providing risk assessment plans even for less risky offerings and a detailed action plan. It did not fine the bank.
"We have been working to address a substantial portion of what's required in the formal agreement, and we are committed to completing the work with the same sense of urgency as our other regulatory commitments," the bank said in a statement on Thursday.
Wells Fargo operates under a $1.95 trillion asset cap that prevents it from growing until regulators deem it has fixed problems dating back to the fake accounts scandal. It still has eight regulatory punishments, called consent orders, that it is working to address.
Fed Chair Jerome Powell said in 2021 that the asset cap would stay in place until the firm had comprehensively fixed its problems. The Fed has not spoken publicly on Wells Fargo's asset cap since then.
"Although an enforcement action against a bank for anti-monetary laundering policies and procedures is unfortunately not that uncommon, it is unique for Wells," KBW analysts led by David Konrad wrote in a note. "It adds uncertainties to the timeline of the asset cap and their expense outlook."
In a regulatory filing last month, the bank had said it was being investigated by government authorities over issues related to anti-money laundering and sanctions programs, which Juneja from JPMorgan said could mean other agencies also taking action.
The 2016 fake accounts scandal led to heightened scrutiny, billions of dollars in penalties, and multiple shareholder lawsuits against the bank, with regulators mandating more oversight.
In February, the OCC lifted a 2016 consent order on the bank's sales practices. At the time, analysts said the move could pave the way for the Fed to lift its consent order as early as this year.
Thursday's knock from regulators is "an unfortunate but not shocking step back in what had otherwise been good forward progress this year on resolving regulatory concerns," Piper Sandler analysts wrote in a report this week.
For other analysts, the outlook for Wells Fargo's regulatory cleanup is still murky.
"We still do not have a clear view of when asset-cap removal would come in any event, much less if additional actions like today's could alter the path further," Jefferies said.
CEO Charlie Scharf has been working to contain the fallout and help resolve the consent orders since he took the top job in 2019.
The asset cap is curtailing Wells Fargo's ability to take in more corporate deposits and expand its trading business, two potential growth areas for the bank, Scharf said earlier this year.
Wells Fargo's stock has risen nearly 7% this year, lagging a 15% jump in a broader S&P 500 bank index .SPXBK.
Reporting by Manya Saini in Bengaluru and Nupur Anand in New York; Editing by Arun Koyyur and Rosalba O'Brien
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
