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Wells Fargo continues to operate under an asset cap with the Federal Reserve, but CEO Charlie Scharf said Thursday that six consent orders with the bank's regulators have ended since 2019.
Angus Mordant/Bloomberg
Wells Fargo has cleared another major hurdle in its yearslong effort to get out of the regulatory doghouse, as its primary regulator terminated a 2016 consent order over its sales practices.
The Office of the Comptroller of the Currency's action indicates that — after years of overhauling its operations — the bank has finally shown it's in compliance with the agency's standards on sales conduct. The OCC had cracked down on the bank and penalized its top executives due to employees opening millions of potentially unauthorized customer accounts.
The biggest penalty Wells Fargo faced in connection with the scandal remains in effect — a Federal Reserve order from 2018 that prohibits the megabank from growing beyond $1.9 trillion in assets. But the OCC's termination of its penalty nonetheless represents a major milestone for CEO Charlie Scharf, whose main task since joining Wells in late 2019 has been putting the bank back in its regulators' good graces.
In the OCC action, which was dated last month, the agency said that "the safety and soundness of the Bank and its compliance with laws and regulations does not require the continued existence" of its 2016 order.
In a press release Thursday, Scharf said the order's termination is "an important sign of our progress." He noted the seven-year-old consent order is the sixth that Wells Fargo's regulators have ended since 2019. The list includes a related 2016 consent order with the Consumer Financial Protection Bureau over sales practices.
"I'd like to thank everyone at Wells Fargo involved for their dedication to transforming how we do business," Scharf said. "We are a stronger, better Wells Fargo for our customers and communities, and we will not lose sight of the remaining work to do."
Wells Fargo's stock price jumped more than 6% on Thursday after the news.
Investors have cheered previous milestones that Wells Fargo has crossed as it seeks to repair its standing with regulators, seeing such announcements as evidence that the bank is moving closer toward being allowed to again grow its assets.
"We view this as a positive for the company as management has prioritized consent orders," RBC Capital Markets analyst Gerard Cassidy wrote Thursday in a note to clients, adding that the OCC's action "paves the way" for the Fed to lift the asset cap.
Wells Fargo's regulatory issues have been wide ranging, but sales practice problems "represented the root of them all," Piper Sandler analyst Scott Siefers wrote in a note to clients. "As such, the resolution of this highly visible order seems to us like an important step forward."
Though Scharf has said the $1.9 trillion asset cap hasn't stopped the bank from making new loans, Wells Fargo has exited some profitable businesses and ceded territory to JPMorgan Chase, Bank of America and other rivals. The bank has also spent heavily on overhauling its compliance efforts, dragging down its profitability. And any ongoing shortcomings could subject it to more large fines from regulators.
In 2021, for example, the OCC fined Wells Fargo $250 million due to continued problems in its mortgage division and inadequate progress in meeting the requirements of a 2018 consent order. An OCC spokesperson declined to provide an update Thursday on the mortgage issue or comment on the termination of the sales practice order, saying the agency does not comment on enforcement actions.
Still, the sprawling consent order from the CFPB was also seen as a sign of progress, as it laid out a path for the megabank to get out of trouble once it met the agency's requirements.
The OCC's 2016 consent order noted that Wells Fargo's incentive programs weren't aligned with branch and customer demands, and said that those programs pressured frontline employees to open fake accounts. Under the order, Wells was required to set up a new companywide risk management and oversight program, along with overhauled complaint and audit divisions, to keep the company in check.
Scharf has emphasized that the San Francisco-based bank's work to meet regulators' demands will take time.
"We've been very careful not to put dates out there because we have to do our work, and then our regulators have to take a look at it and see if it's done to their satisfaction," Scharf said last July. "We don't want to get ahead of that process, but we continue to move forward."
The North Carolina-based bank rolled out a multiyear program to provide loans, investments and philanthropic support to communities in the western part of the state.
Consumer Financial Protection Bureau Director Rohit Chopra said the FICO credit-scoring model has drawbacks in price, predictiveness and market competition, and stakeholders should develop a more open-sourced model that uses artificial intelligence.
Analysts say lenders' shares could rally on deregulation, lighter tax burdens and a resurgence of M&A. Declining interest rates and lower loan losses could further bolster bottom lines and attract investor interest.
The contract gives the nation's oldest bank access to more than $3 billion in deposits a month. Comerica, the current administrator, has received a three-year extension of service to help with the transfer.
