Fed orders Wells Fargo to halt growth over compliance issues
WASHINGTON: Wells Fargo & Co detailed new regulatory restrictions imposed by the US Federal Reserve on Friday that sent its shares down sharply in after-hours trading, as the third-largest US bank continues to reel from a sales scandal that erupted in 2016.
Wells is not allowed to grow beyond the US$1.95 trillion in assets it had at the end of last year “until it sufficiently improves its governance and controls,” the Fed said in a statement.
Wells Fargo estimated that the cap will cut its annual profit by US$300mil to US$400mil this year, as it reduces some parts of its balance sheet, like corporate deposits and trading assets, in order to continue growing core businesses. That represents 1.5% to 1.9% of the profit Wells generated in 2017.
The bank will also replace three board members by April and a fourth board member by the end of the year, the Fed said, without naming who they should be.
Wells Fargo shares fell 6.1% to US$60.10 in after-hours trading.
The Fed’s consent order will have a “manageable” impact on profits and should not affect the bankâ s plans to return capital to shareholders this year, chief executive officer Tim Sloan said during a conference call with analysts last Friday evening.
“We are in a very competitive business whether we have a consent order or not,” said Sloan.
“Our marching orders to our team are, go out and serve your customers, fulfill our vision, take deposits, make loans. We are open for business.”
While Sloan said he takes the matter seriously, he also characterised it as the latest step in a risk-management and corporate governance overhaul that Wells Fargo began some time ago, when it realised it had a serious problem with sales practices. — Reuters