The Biden administration relaxed some restrictions on Wells Fargo, stating that the bank has addressed its toxic culture following years of scandals.
The announcement boosted Wells Fargo's stock significantly on Thursday. Investors believe the bank might now be able to improve its reputation and start growing again after years of facing strict regulation. Wells Fargo's shares surged by 7.2% to $52.04, marking its highest closing price since March 2022, amidst high trading activity.
An Order Lifting Wells Fargo's Regulatory Constraints
On Thursday, the Office of the Comptroller of the Currency, which oversees major national banks like Wells Fargo, lifted a consent order that had been in effect since September 2016, which mandated the bank to revamp its sales practices, enhance consumer protections, and safeguard employees from whistleblowers, after series of investigations revealed Wells Fargo's toxic sales culture.
A Scandal Damaging the Nation's Best-Run Banks
Employees working in "stores" instead of bank branches were pressured to sell unnecessary products, opening millions of unauthorized accounts. Many customers, especially non-English speakers, suffered identity theft and credit score damage as a result, damaging the reputation of the once highly regarded as one of the nation's best-run banks by investors and analysts.
Since the scandal, Wells Fargo changed its board and leadership, paid over a billion dollars in fines, and spent eight years addressing public concerns about its practices. The scandal even led to unionization efforts as employees at some branches objected to unrealistic sales targets set by managers.
Wells Fargo's Solid Evidence of Compliance to Laws and Regulations
According to the Comptroller of the Currency's statement on Thursday, Wells Fargo's financial stability and adherence to laws and regulations no longer necessitate the Order's continuation.
The decision is a big win for Wells Fargo's leadership and CEO Charles Scharf, who assumed the role in 2019. Scharf expressed gratitude for the effort put in by Wells Fargo employees, acknowledging their dedication to changing the company's business practices.
Citigroup banking analyst Keith Horwitz also noted that the OCC's decision proves that Wells Fargo's management diligently took effective steps to fix the company's cultural issues.
One Remaining Federal Order Left
The Federal Reserve still has a consent order against Wells Fargo, which has mandated that the bank cannot expand beyond its current size until it resolves its sales culture issues. While the Fed didn't provide a comment, the OCC's move is expected to influence the Fed's decision on whether to maintain its restrictions on Wells Fargo.
Including the Fed's Order, Wells Fargo currently has eight consent orders regulating its operations, which is a decrease from the 14 orders in place when Scharf became CEO. The leadership acknowledges that there is still more work to be done.
In a recent interview, Scott Powell, Wells Fargo's chief operating officer, highlighted changes within the company. Powell, who joined the bank similarly to Scharf, emphasized improvements for customers and employees, mentioning ongoing efforts to tackle remaining risk issues.
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