Wells Fargo: A New Dawn After Enforcement Actions Termination

Wells Fargo, the embattled banking giant, has received a significant boost in its ongoing efforts to rebuild its reputation and address regulatory challenges. The Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB) have terminated two longstanding enforcement actions against the bank, marking a crucial step in its journey towards regulatory remediation. This development has been welcomed by investors, who see it as a positive sign of the bank's progress in addressing its historical matters.

The Federal Reserve's termination of two 2011 consent orders against Wells Fargo, related to deficient practices in residential mortgage loan servicing and foreclosure processing, as well as deficient mortgage lending practices at a former subsidiary, has been hailed as a major victory for the bank. The Fed's decision to close these enforcement actions indicates that the bank has made significant strides in addressing its regulatory issues and improving its governance and risk management processes. This move comes on the heels of the CFPB's termination of a 2022 consent order against the bank, which accused it of improperly denying mortgage loan modifications, miscalculating fees, unfairly freezing customer accounts, and charging unfair overdraft fees.



The termination of these enforcement actions has had a positive impact on Wells Fargo's stock performance. The bank's shares surged nearly 43% in 2024, handily outperforming the S&P 500 index and a benchmark for large-cap banks. This strong performance can be attributed to investors' growing confidence in the bank's ability to address its regulatory challenges and rebuild its reputation. The terminations of these enforcement actions have further bolstered this confidence, as they demonstrate that the bank is making significant progress in its efforts to resolve its historical matters.

Wells Fargo's CEO, Charlie Scharf, has expressed his satisfaction with the terminations, stating that the bank is a "different company today" and that the resolution of these longstanding Federal Reserve consent orders is another indication that the team is establishing the right processes and controls to meet the expectations of regulators and the bank itself. Scharf remains confident in the bank's ability to complete the work required in its remaining consent orders and embed an operational risk and compliance mindset into its culture.



The terminations of these enforcement actions have also led analysts to speculate that the bank may be on track to have its $1.95 trillion asset cap removed in 2025. The asset cap, imposed by the Federal Reserve in 2018, prevents Wells Fargo from growing until regulators deem it has fixed the problems dating back to the 2016 fake-accounts scandal. The bank has been working diligently to address these issues and improve its governance and risk management processes, and the terminations of these enforcement actions are a testament to its progress in this regard.

In conclusion, the termination of longstanding enforcement actions against Wells Fargo by the Federal Reserve and the CFPB is a significant milestone in the bank's ongoing efforts to address its regulatory challenges and rebuild its reputation. This development has been welcomed by investors, who see it as a positive sign of the bank's progress in resolving its historical matters. As the bank continues to work through its remaining consent orders, investors may remain optimistic about the potential for further improvements in the bank's stock performance and its prospects for growth.