June 1, 2020 – At the Bernstein Strategic Decisions Virtual Confenrece on Friday, Wells Fargo Charlie Scharf said the bank had to make “touch choices” in its asset deployment to meet the “asset cap” requirement imposed by the Federal Reserve in 2019.
In early 2018, the Federal Reserve voted unanimously to impose an unprecedented enforcement action against the bank in response to severe governance failures, restricting the bank’ from expanding beyond its 2017 level at just under $2 trillion.
As reported on Friday by the American Banker:
“The asset cap is unfortunate especially in an environment like this, but it’s a fact of life and we’re more focused than ever on doing the work necessary to get it behind us,” Scharf said.
Scharf said bank officials are still working to meet the conditions set by regulators. But that work was delayed by the pandemic, he said.
“Has it gotten in the way of the work that has to get done? I think the honest answer is in those first couple of weeks when we were all trying to figure out how to work from home there was probably a little disruption in everything,” Scharf said. “But we and everyone else settled into this way of working, and the work is continuing.”
Wells Fargo stock is down about 50% year-to-date, underperforming the other large cap banks (JP Morgan and Bank of America) which are lower by about 25-30%.
A boutique equity analyst who covers banks attributed the underperformance to Wells’ exposure to the U.S. residential market, loan loss provisions for small-medium businesses and inability to get over the hump of the asset cap. There is residual investor worries that if Joe Biden appoints a progressive VP like Elizabeth Warren, the political climate for Wells could further sour.
Leading VP candidates like Senator Warren, Senator Harris and Senator Klobuchar have all expressed unhappiness at Wall Street banks.
When the Wells Fargo asset cap was first imposed in 2018, Senator Elizabeth Warren applauded the Federal Reserve’s actions.
“For months, I have repeatedly pressed Janet Yellen to hold Wells Fargo accountable for its fake-accounts scam and push out responsible board members,” Warren said. “Today she did it — in her last act as Fed chair. Fines alone will never rein in fraudulent behavior at the big banks and by pushing out board members at Wells Fargo, Chair Yellen sends a strong message.”
Contact Karen Bigelow at KBigelow@buymuni.com.
