Wells Fargo shares gain as asset cap likely to be lifted in 2025, report says

Investing.com -- Wells Fargo (NYSE:WFC) is nearing the final stages of meeting regulatory requirements to lift the $1.95 trillion asset cap imposed after its fake accounts scandal, Reuters reported Tuesday, citing three sources with knowledge of the matter.

The cap could be removed as early as the first half of 2025, the report said, adding that the bank has completed the necessary work to address the issues. However, the Federal Reserve's board of governors must still vote on whether to remove the restriction.

The bank's shares rose more than 2% in premarket trading.

The asset cap, introduced by the Fed in 2018, is one of the most stringent penalties regulators can enforce. It was put in place to push Wells Fargo to resolve governance and risk management failures after years of misconduct that harmed customers. While the bank has made substantial progress, the Fed's governors could choose to maintain the cap if they believe further improvements are needed.

If lifted, the removal of the asset cap would represent a significant milestone in Wells Fargo’s efforts to rebuild after the scandal. The bank has faced numerous regulatory penalties, including billions of dollars in fines and additional restrictions, some of which remain in effect.

In September, Bloomberg reported that Wells Fargo submitted a third-party review to the Fed as part of its efforts to demonstrate an overhaul of its risk management and controls.

The scandal, which surfaced in 2016, sparked widespread criticism and led to accusations of "pervasive and persistent misconduct" by the Fed. More recently, Senator Elizabeth Warren urged the Fed to maintain the asset cap until the bank fully resolved its risk and compliance shortcomings.

Meanwhile, the regulatory environment may shift with President-elect Donald Trump’s administration expected to reduce regulatory burdens on banks, including capital requirements and merger rules. Wall Street is closely watching how these changes could impact institutions like Wells Fargo.

While Wells Fargo has been constrained under the asset cap, competitors have grown significantly. JPMorgan Chase (NYSE:JPM) has expanded its assets by over $1.5 trillion since 2018, with Bank of America Corp (NYSE:BAC) and PNC Financial (NYSE:PNC) adding around $1 trillion and $200 billion, respectively.

Earlier this year, the Office of the Comptroller of the Currency (OCC) lifted a 2016 consent order related to Wells Fargo’s sales practices, a move seen as paving the way for the cap’s removal. That consent order required the bank to overhaul how it sold products and services and implement safeguards for customers and employees.

Wells Fargo has resolved six consent orders since CEO Charlie Scharf took over in 2019, but eight remain open. Consent orders, which are formal agreements with regulators, often include fines and require banks to address issues within specified timelines.

This article first appeared in Investing.com