Wells Fargo Soars as Regulator Terminates Consent Order
Wells Fargo's stock jumps 7.12% following successful fulfillment of regulatory requirement related to fake accounts scandal.
Shares of Wells Fargo (NYSE: WFC) surged on Thursday after the bank announced that the Office of the Comptroller of the Currency (OCC) had terminated a consent order related to the bank's fake-accounts scandal. The stock rose 7.12% to around $52.11 in afternoon trading, bringing its year-to-date gains to 5.6%.
Analysts at Evercore ISI expressed their optimism regarding the news, suggesting that it shows steady progress in addressing the bank's regulatory issues. "We view today's announcement positively in that it confirms steady progress in addressing WFC's regulatory issues," they stated on Thursday.
The consent order, issued in 2016, required Wells Fargo to revamp its offerings and sales practices following the revelation that millions of unauthorized accounts were being opened on behalf of clients by employees. Since 2019, Wells Fargo has successfully terminated six consent orders, a significant milestone for CEO Charlie Scharf, who has been leading the bank since October 2019.
Scharf acknowledged the importance of closing consent orders as a sign of progress. "I have repeatedly said that implementing a risk and control framework appropriate for a bank of our size and complexity is our top priority, and closing consent orders is an important sign of our progress," he stated in a press release.
Despite the positive development, Wells Fargo still faces several regulatory hurdles. The bank remains subject to eight consent orders, including an asset cap imposed by the Federal Reserve in 2018, which limits its growth potential. However, the termination of the OCC consent order could potentially pave the way for the removal of the asset cap order as well.
Bank of America analyst Ebrahim Poonawala noted that most investors had anticipated the asset cap being lifted in 2025, but with the recent news, the timeline could potentially be moved up to 2024. Poonawala commended Scharf and his management team for their progress, highlighting the challenging regulatory environment they have been operating in. "The fact that this occurred against a backdrop where regulators appear disinclined to cut slack to the banks speaks to the progress management has made and highlights regulator willingness to allow banks to emerge from 'the penalty box' once the necessary remediation actions have been taken," he wrote.
While Wells Fargo still has work ahead to fully overcome its regulatory challenges, the termination of the OCC consent order represents a significant milestone for the bank in its journey towards rebuilding trust and improving its standing in the industry.
Analyst comment
Positive news. Wells Fargo’s shares shot higher after successfully fulfilling a key regulatory requirement related to the fake-accounts scandal. The termination of the consent order by the OCC is a win for the company and CEO. The removal of the asset cap order may be possible, moving up the timeline for removal. Analysts view the progress positively and credit management for making headway despite regulatory challenges. The market is likely to continue responding positively to the news.
