Fed Lifts Asset Cap on Wells Fargo, Concluding Seven-Year Regulatory Oversight

TradingKey - The Federal Reserve announced on Tuesday that Wells Fargo (WFC) has satisfied all conditions of the 2018 regulatory actions, resulting in the lifting of its asset cap. Following the news, Wells Fargo's stock rose 3% and surged over 10% in after-hours trading.

The asset restriction was imposed after Wells Fargo was exposed in 2016 for creating a large number of fake accounts, leading to a $185 million fine that year. Subsequently, Wells Fargo was accused of systemic management failures, prompting the Fed to implement an unprecedented asset cap in 2018. This measure barred the bank from expanding its operations until governance rectifications were completed.

Since its implementation in February 2018, the cap has been one of the most severe penalties imposed within the banking industry. It is estimated that Wells Fargo lost approximately $39 billion in profits due to this restriction.

Currently, Wells Fargo lags behind Wall Street giants like Goldman Sachs, JPMorgan Chase, and Morgan Stanley. However, the removal of the penalties signals a renewed potential for growth.

John Pancari, an analyst at Evercore ISI, estimates that without the asset cap, Wells Fargo's annual earnings per share could increase by about $1.19, equating to an 18% rise. He rates Wells Fargo stock as "outperform." Meanwhile, JPMorgan analyst Vivek Juneja maintains a "neutral" rating on the stock.

In addition to lifting the asset restriction, the Federal Reserve emphasized that other provisions of the 2018 regulatory order will remain in effect until the bank fulfills all compliance requirements.