Wells Fargo Asset Cap Lifted by Fed, Shares Gain

Wells Fargo & Co. finally escaped a Federal Reserve asset cap that has restricted its size for more than seven years, unleashing the firm from the unprecedented punishment in a major win for Chief Executive Officer Charlie Scharf. The bank’s shares surged.

The Fed said in a statement Tuesday that Wells Fargo met all conditions required by an enforcement action imposed on the bank in 2018 to remove the restriction. The central bank completed its review of Wells Fargo’s remediation efforts and third-party assessments, as well as its own assessment of the bank’s corporate governance and risk management programs, it said.

The hotly anticipated verdict closes the door on nearly a decade of scandals at the fourth-largest US lender and allows the bank to pursue growth again. Since the cap was imposed in February 2018, it became the most-feared punishment in banking and caused Wells Fargo to miss out on about $39 billion in profits by one measure.

Charlie Scharf can finally play offense.

After more than a half-decade cleaning up Wells Fargo & Co.’s scandals, the chief executive officer has cleared away the firm’s biggest impediment to growth: the Federal Reserve’s seven-year-old cap on assets. That means the $1.95 trillion lender can once again seek to narrow the gap with larger rivals JPMorgan Chase & Co. and Bank of America Corp. — including in Wall Street business lines.

The unshackling of Wells Fargo sets up stiffer competition among the biggest US banks — and a new chapter for Scharf, who has sought to keep a low profile since taking over in late 2019. That will change, according to people familiar with his thinking. As one of them put it, the job is just starting to be fun, and Scharf, 60, plans to stick around for that.

“Charlie has worked extremely hard over the years to resolve heritage issues at the bank and to get to this place today, and he and his team deserve a lot of credit,” said Jamie Dimon, the longtime JPMorgan Chase & Co. CEO who hired Scharf out of college and turned him into a protégé. “This is not only good for Wells Fargo but for the industry overall.”

After months of Wells Fargo executives awaiting a verdict, the Fed’s announcement Tuesday was so abrupt that many of the bank’s senior leaders were scattered. Some were attending an intern orientation in Orlando. Its chairman was celebrating his 73rd birthday.

Until that moment, Scharf had mostly been a fix-it guy at Wells Fargo — the fourth leader to attempt to wrestle its problems into submission. Yet in the decades before his arrival, he focused on growing businesses.

He helped Dimon build the modern JPMorgan, then jumped to Visa Inc., where he more than doubled its stock price in four years. During that time, he oversaw the roughly $20 billion purchase of Visa Europe and reshaped the payments firm to compete with emerging competitors including PayPal Holdings Inc. He was just settling into his next CEO gig at Bank of New York Mellon Corp. when Wells Fargo announced in 2019 that it had lured him away.

With the asset cap gone, shareholders will be eager to hear much more about strategy. The outlines of Scharf’s aspirations are little secret.

His team has been laying the groundwork and making targeted hires for years to ramp up trading operations that were limited by the cap. They have also been adding investment bankers in a bid to win more underwriting and advisory business. Scharf also marked credit cards and wealth management as key growth areas in his early years at the bank, and that list will likely expand now that the cap is gone.

The gap between Wells Fargo and other Wall Street banks is still wide. The firm’s trading revenue and investment-banking fees last year were about the same as what JPMorgan earned from those businesses in the fourth quarter alone.

This look at the clean-up and strategy is based on accounts from people with direct knowledge of the matter, who asked not to be identified discussing behind-the-scenes events. A spokesperson for Wells Fargo declined to comment beyond a statement Tuesday calling the Fed’s decision a “pivotal milestone” for the bank.

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