The US Federal Reserve on Tuesday announced that Wells Fargo will no longer be subjected to asset growth restrictions that the regulator imposed on the bank in 2018, following its long-running fake accounts scandal.
The Fed said in a statement on Tuesday that Wells Fargo met all conditions required to remove the restriction. The central bank completed its review of Wells Fargo’s remediation efforts and third-party assessments, as well as the Fed’s own assessment of the bank’s corporate governance and risk management programmes.
What made Fed to put asset cap?
The asset cap was put in place after Wells Fargo was accused of inflating its growth by pressuring its employees to open millions of unauthorised accounts to hit sales targets.
The staff forged signatures, moved money into unauthorised accounts and altered contact details to open accounts without customers’ knowledge, resulting in the Fed blocking the bank from growing beyond $1.95 trillion in total assets, which is a rare and severe penalty, as reported by Financial Times.
According to the report, Wells Fargo paid more than $5 bn in penalties to regulators and class action claimants over the scandal.
Bloomberg also reported that since then, the bank also lost an estimated $36 billion in potential profits. While its competitors, JP Morgan and BoFA, expanded massively, Wells Fargo was unable to compete at full capacity.
How the bank reacted
The CEO of Wells Fargo Charles W. Scharf said in a statement on Tuesday that the lifting of the asset cap was “a huge accomplishment for the 215,000 employees of Wells Fargo, who together contributed to this milestone”.
Scharf also said that each employee would receive a $2,000 award, mostly in the form of stock grants. The special award will vary in select international locations and for select employee classifications.
Investor sentiment after Fed decision
Wells Fargo’s share price climbed around 3 per cent in extended trading on Tuesday, after the Federal Reserve made the announcement. The bank’s share is currently trading at $75.65, reflecting a boost in investor confidence.
While the bank still faces some additional reviews from the Fed as part of the 2018 order, the removal of the asset cap marks a significant shift for the United States’ fourth-largest lender, after the scandals led to the removal of multiple executives. The former CEO of Wells Fargo, Tim Sloan resigned shortly after the 2018 ruling by the Fed.
About Wells Fargo
Wells Fargo is a large, American multinational financial services company, headquartered in California.
It’s known for offering a wide range of banking, investment, and mortgage products and services. Wells Fargo is also considered one of the “Big Four Banks” in the United States.