Elizabeth Warren, a top Democratic Senator, has requested the Federal Reserve not to remove the $1.95 trillion asset cap imposed on Wells Fargo & Company WFC until the bank solves its risk management and compliance issues. This was reported by Reuters on Nov. 20, 2024.
In a letter to the Fed’s chairman, Jerome Powell and regulatory chief, Michael Barr, Warren highlighted that the restriction, which was imposed in 2018, should not be lifted until WFC "can show that it can properly manage the risks associated with running a large bank."
Warren also reminded Powell regarding his decision from 2018, where he had promised to submit any decision on the removal of the cap to the Board of Governors, where the governors will decide whether to approve or reject it.
Regulatory & Legal Challenges Continue for WFC
Warren highlighted that WFC has been slapped with a series of regulatory actions since 2018, including recent shortcomings, which were flagged by the Office of the Comptroller of the Currency regarding the bank’s anti-money laundering controls.
The Senator also pointed out the ongoing litigations against the bank, including a class-action lawsuit over its diversity hiring practices.
In September 2024, the bank faced another class-action lawsuit for underpaying interest to clients participating in its cash sweep program. The lawsuit alleged that WFC didn't pay enough interest on uninvested cash while making a significant profit from these funds, leading to substantial financial loss for its clients.
Wells Fargo’s Appeal to Remove Asset Cap
In September 2024, WFC submitted a third-party review of its risk and control overhauls to the Fed for scrutiny and approval, per a Bloomberg report. This submission was a part of the bank's efforts to lift the asset cap that was imposed due to its fake accounts scandal and other governance failures.
This submission follows an extensive and time-consuming procedure during which Wells Fargo had to present a plan, seek approval (which required several attempts), implement it and then engage an external auditor to evaluate its efficiency.
Wells Fargo CEO's Efforts to Overhaul Compliance Issues
The senator emphasized that while Wells Fargo has made efforts to overhaul the risk and compliance framework of the bank under the leadership of CEO Charlie Scharf, persistent problems indicate that additional actions are required to eliminate regulatory oversight.
Scharf has eliminated six regulatory consent orders since 2019, which Warren argues is not enough to remove the asset cap.
Wells Fargo’s Price Performance & Zacks Rank
Over the past six months, shares of WFC have gained 20.7% compared with the industry’s growth of 21.4%.
Image Source: Zacks Investment Research
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked bank stocks are Raymond James Financial, Inc. RJF and BGC Group, Inc. BGC, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RJF’s earnings has been revised marginally upward for 2024 over the last seven days. Shares of RJF have gained 31.2% over the past six months.
Earnings estimates for BGC have remained unchanged over the past seven days. In the past six months, BGC shares have gained 17.2%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
