Wells Fargo & Co. has entered a key new phase of its almost seven-year effort to escape a Federal Reserve cap on its assets, a punishment that has become the most feared in banking.
Behind the scenes, the firm has submitted a third-party review of its risk and control overhauls to the Fed for the central bank's analysis and sign-off, according to people familiar with the matter. That follows a years-long process in which Wells Fargo had to submit a plan and get it accepted — which took multiple tries — and then enact it and hire an outside auditor to assess its implementation.
Shares of San Francisco-based Wells Fargo surged as much as 6.5% after Bloomberg News reported the submission, their biggest intraday increase in seven months.
Wells Fargo executives still see the cap stretching at least into next year while the Fed reviews the submission, the people said, asking not to be identified discussing the confidential matter. Along the way, the regulator could request more information or additional work. And, even then, removing the restriction requires a vote by the full Fed board.
Spokespeople for Wells Fargo and the Fed declined to comment.
The cap limits the bank to its size at the end of 2017 — about $1.95 trillion of assets — curbing the company's potential to boost profits. The unprecedented sanction was a dramatic parting act by Janet Yellen as her term as Fed chair ended in early 2018. At the time, frustrated regulators were struggling to force the bank to address a pattern of consumer abuses and compliance lapses.
Initially, Wells Fargo's then-bosses signaled the cap might not last long, suggesting to investors that the firm could complete much of the work that same year to meet regulators' demands. But that optimism soon faded as both sides realized how much it would take to overhaul internal oversight from bank's branches up through its board.
Charlie Scharf inherited the task when he joined the firm as chief executive officer five years ago. His team submitted a plan in September 2020 that was accepted within months. The firm has spent the intervening years on implementation, reviews and preparing the latest submission.
The regulatory sanction is easily one of the costliest ever levied — a multibillion-dollar drag on earnings and the stock — leaving analysts obsessing over any signs of progress toward getting it lifted. Shares of Wells Fargo, while up 37% over the past year, are still trading below where they were when the measure was enacted.
During the cap's lifespan so far, JPMorgan Chase & Co. has swelled 64% to more than $4 trillion of assets — meaning the nation's largest bank has added almost an entire Wells Fargo to its balance sheet.
