By Manya Saini, Niket Nishant and Nupur Anand
(Reuters) -The top U.S. consumer watchdog has terminated a 2022 order punishing Wells Fargo for allegedly mishandling auto loans and mortgages, the bank said on Tuesday, bringing it a step closer to having the $1.95 trillion asset cap imposed on the lender removed.
The Consumer Financial Protection Bureau had accused the bank of improperly repossessing customers’ vehicles and imposing certain fees and charges erroneously.
It also said the lender denied mortgage loan modifications to qualified borrowers and improperly froze or closed customer accounts.
The termination, which the bank said marks the seventh consent order closed by regulators since 2019, marks another win for CEO Charles Scharf, who has spearheaded a massive clean up effort since taking charge.
“We view this news as a positive for Wells Fargo as it demonstrates progress of working with the company’s regulators,” RBC Capital Markets analyst Gerard Cassidy wrote in a note, adding the brokerage expects the asset cap to be lifted in the first half of 2025.
Mandated by the Federal Reserve in 2018, the asset cap prevents Wells from growing until regulators deem it has fixed problems dating back to the 2016 fake-accounts scandal.
It is seen as one of the toughest punishments U.S. regulators can put in place, and its removal requires a vote by the Fed’s board of governors.
Regulators ordered additional oversight of Wells in the wake of the turmoil. The bank has also been fined billions of dollars and faced public outcry in the wake of what the Fed called “pervasive and persistent misconduct” that harmed consumers.
“Wells Fargo is a repeat offender that continues to have serious issues,” a spokesperson for the CFPB said in an emailed statement to Reuters. “While the duration of an individual CFPB order elapsed, the agency’s Repeat Offender Unit is continuing to closely scrutinize the bank.”
The bank did not immediately respond to a request for comment on the regulator’s statement.
CLOSER TO RELIEF
“While it is yet to be seen if the new regulatory regime lifts the asset cap this year or not, these developments bring it a step closer,” said Chris Marinac, director of research at Janney Montgomery Scott.
Last year, Reuters, citing sources, reported the bank was in the last stages of a process to pass regulatory tests to lift the asset cap in 2025, after fixing the problems from its fake-accounts scandal.
The punishment could be removed as early as the first half of 2025, a source said at the time.
“Today’s development shows that the process of getting the asset cap lifted is accelerating and it seems that the bank may come out of it this year,” said Brian Mulberry, portfolio manager at Zacks Investment Management, which holds several bank stocks.
GRADUAL PROGRESS
The bank’s efforts to address its regulatory shortcomings have paid off. Early last year, the U.S. Office of the Comptroller of the Currency also terminated a 2016 punishment for the bank’s sales practices.
Investors have cheered the victories. Wells shares surged nearly 43% in 2024, handily outperforming the S&P 500 index and a benchmark for large-cap banks.
However, putting the regulatory woes behind would provide another major lift. Scharf said in May the asset cap was curtailing the bank’s ability to take in more corporate deposits and expand its trading business.
“I’m confident that we will successfully complete the work required in our consent orders and embed an operational risk and compliance mindset into our culture,” he said earlier this month.
(Reporting by Manya Saini and Niket Nishant in Bengaluru and Nupur Anand in New York; Editing by Krishna Chandra Eluri and Andrea Ricci)
