Wells Fargo (WFC) is nearing the end of meeting the regulatory requirements to lift the asset cap imposed by the Federal Reserve in 2018, which limits the bank’s growth to $1.95 trillion in assets. This cap was a penalty following the bank’s involvement in a 2016 scandal, where its employees created millions of unauthorized accounts without customers’ consent to meet sales quotas.
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Since 2016, CEO Charlie Scharf has been working to resolve the issues that led to the asset cap. In this regard, the bank has made significant improvements to its governance and risk management systems, while facing strict scrutiny from the Federal Reserve.
If the regulatory body is satisfied with the bank’s progress, the asset cap could be lifted as early as the first half of 2025. This would mark a significant milestone for Wells Fargo, allowing the bank to resume normal growth and compete more effectively with its peers.
Asset Cap Impacted WFC’s Earnings
The cap restricted the bank’s ability to grow its balance sheet, affecting its revenue from loan origination and interest income. According to a MarketBeat report, the asset cap is estimated to have cost Wells Fargo more than $10 billion in earnings since its implementation.
Importantly, while Wells Fargo’s expansion has been constrained under the asset cap, its rivals have grown significantly since 2018. JPMorgan Chase (JPM) has grown its assets by over $1.5 trillion. Further, Bank of America (BAC) and PNC Financial (PNC) have added around $1 trillion and $200 billion, respectively.
Wells Fargo’s Regulatory Issues Prevail
It is worth highlighting that in addition to the asset cap, Wells Fargo is facing eight other consent orders from several regulatory bodies over issues such as compliance risk management, mortgage loan servicing, and auto loan insurance. A consent order is a formal agreement between a regulator and a bank, often involving a fine and specific actions to address identified issues.
These consent orders may continue to affect Wells Fargo’s business in the future.
Is WFC Stock a Buy or Sell?
Turning to Wall Street, WFC has a Moderate Buy consensus rating based on 12 Buys and nine Holds assigned in the last three months. At $66.70, the average Wells Fargo price target implies a 13.77% downside potential. Shares of the company have gained over 61% year-to-date.
