By Nupur Anand
NEW YORK (Reuters) -Investors and analysts are more hopeful the asset cap on Wells Fargo will be lifted this year after the bank managed to close five regulatory actions in 2025, making its shares more attractive.
Since January, the bank has closed two consent orders by the Federal Reserve, two by the Office of the Comptroller of Currency and one by the Consumer Finance Protection Bureau.
It has three remaining consent orders — an enforcement action involving a fine or specific directive to address an issue by the regulators.
Investors say this shows progress toward fixing corporate governance issues and an ability to work with regulators.
“The closing of five consent orders in just a couple of months shows that the company is on the right track and the timeline of ending other regulatory punishments including asset cap has accelerated,” said Dave Ellison, a portfolio manager at Hennessy Funds, which holds Wells Fargo shares.
Wells Fargo is operating under an asset cap mandated by the Federal Reserve in 2018, preventing it from growing until regulators deem it has fixed problems dating back to the 2016 fake-accounts scandal.
It is 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. Wells Fargo declined to comment.
But resolving multiple consent decrees has fueled expectations that the asset cap could be lifted in 2025, with some suggesting it could be in the first half of this year.
“While we don’t currently own any Wells Fargo stock in our portfolio, the recent developments at the bank have been very positive and we could look at adding the stock as things are looking positive for them,” said Walter Todd, chief investment officer at Greenwood Capital Associates, which manages $1.7 billion in assets, including some other bank stocks.
Fixing compliance problems has been the top priority for the bank under CEO Charlie Scharf, who took over the helm in 2019. Since then, the bank has closed 11 consent orders.
“Once the asset cap is lifted, the bank’s earnings could also improve and can grow faster than some of its peers, painting a positive picture for the bank,” said Brian Mulberry, portfolio manager at Zacks Investment Management, who holds the bank’s stock.
Despite recent market volatility, Mulberry expects Wells Fargo’s stock to touch $80 in the medium term. On Tuesday, it closed at $71.11. Among its large bank peers, it is the only stock that is in positive territory this year at a time when others have slumped.
While Wells Fargo has been constrained under the asset cap, competitors have grown significantly. JPMorgan Chase has grown its balance sheet by nearly 55% since 2018, meanwhile Bank of America Corp has grown by 40%.
“In the current regulatory environment where there are expectations that bank mergers could increase, once the asset cap is lifted, down the line Wells can also look at ways to grow further by taking the acquisition route, which can help to bridge the gap with its peers,” Todd said.
(Reporting by Nupur Anand in New York, additional reporting by Niket Nishant; Editing by Bill Berkrot)
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