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WFC Stock Up 5.2% on Submission of Review to Fed for Lifting Asset Cap
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Wells Fargo & Co.'s (WFC - Free Report) longstanding battle to escape a Federal Reserve restriction imposed on its assets since 2018 entered a new phase. The bank submitted a third-party review of its risk and control overhauls to the Fed for scrutiny and approval, per a Bloomberg report, citing people familiar with the matter.
Following the news, WFC’s shares rose 5.2% in yesterday’s trading session.
The latest submission follows an extensive and time-consuming procedure during which Wells Fargo had to present a plan, have it approved (which required several attempts), implement it and then engage an external auditor to evaluate its efficiency.
A Look at Wells Fargo’s Asset Cap
Troubles mounted at Wells Fargo in September 2016 following the revelation of the opening of millions of unauthorized accounts, along with issues in its auto-insurance business, online bill pay services and the Wealth and Investment Management segment. Following this, the bank has been slapped with numerous penalties and sanctions, including a cap of $1.95 trillion by the Fed.
CEO Charlie Scharf, joined the bank in October 2019 to lead the turnaround effort. His team submitted a proposal to overhaul its risk management and governance in September 2020 that was accepted within months. The bank spent the superseding years on implementation, reviews and preparing the latest submission.
Initially, Wells Fargo's management gave investors hope that the asset cap might not continue long since the company could finish a large portion of the work in time to satisfy regulatory requirements. This hope quickly dissipated with the awareness of how difficult it would be to reform internal control, starting with the bank's branches and ending with the board.
Final Words on Wells Fargo's Latest Submission on Asset Cap
Given that loans are among the largest assets a bank can hold, WFC has been forced to forgo growth prospects to operate under the $1.95 trillion asset cap. Though the company has undertaken several measures to meet regulators' requirements, the asset cap is hindering it from fully capitalizing its loan portfolio, hindering its growth potential.
The sign of progress toward lifting the asset cap will offer relief to the investors. However, Wells Fargo management still expects the cap to stretch at least till 2025 while the Fed reviews the submission, people related to the matter disclosed. The regulator could ask for more information or additional work. In spite of that, removing the restriction requires a vote by the full Fed board.
WFC’s Zacks Rank & Price Performance
Wells Fargo currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of WFC have lost 1.4% against the industry’s growth of 6.1%.
Earnings estimates for JHG for the current year have been revised 5.2% upward in the past 60 days. The company’s share price has increased 18.8% over the past six months.
Estimates for AB’s current-year earnings have been revised 1% upward in the past 60 days. The company’s shares have gained 4.3% in the past six months.
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WFC Stock Up 5.2% on Submission of Review to Fed for Lifting Asset Cap
Wells Fargo & Co.'s (WFC - Free Report) longstanding battle to escape a Federal Reserve restriction imposed on its assets since 2018 entered a new phase. The bank submitted a third-party review of its risk and control overhauls to the Fed for scrutiny and approval, per a Bloomberg report, citing people familiar with the matter.
Following the news, WFC’s shares rose 5.2% in yesterday’s trading session.
The latest submission follows an extensive and time-consuming procedure during which Wells Fargo had to present a plan, have it approved (which required several attempts), implement it and then engage an external auditor to evaluate its efficiency.
A Look at Wells Fargo’s Asset Cap
Troubles mounted at Wells Fargo in September 2016 following the revelation of the opening of millions of unauthorized accounts, along with issues in its auto-insurance business, online bill pay services and the Wealth and Investment Management segment. Following this, the bank has been slapped with numerous penalties and sanctions, including a cap of $1.95 trillion by the Fed.
CEO Charlie Scharf, joined the bank in October 2019 to lead the turnaround effort. His team submitted a proposal to overhaul its risk management and governance in September 2020 that was accepted within months. The bank spent the superseding years on implementation, reviews and preparing the latest submission.
Initially, Wells Fargo's management gave investors hope that the asset cap might not continue long since the company could finish a large portion of the work in time to satisfy regulatory requirements. This hope quickly dissipated with the awareness of how difficult it would be to reform internal control, starting with the bank's branches and ending with the board.
Final Words on Wells Fargo's Latest Submission on Asset Cap
Given that loans are among the largest assets a bank can hold, WFC has been forced to forgo growth prospects to operate under the $1.95 trillion asset cap. Though the company has undertaken several measures to meet regulators' requirements, the asset cap is hindering it from fully capitalizing its loan portfolio, hindering its growth potential.
The sign of progress toward lifting the asset cap will offer relief to the investors. However, Wells Fargo management still expects the cap to stretch at least till 2025 while the Fed reviews the submission, people related to the matter disclosed. The regulator could ask for more information or additional work. In spite of that, removing the restriction requires a vote by the full Fed board.
WFC’s Zacks Rank & Price Performance
Wells Fargo currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of WFC have lost 1.4% against the industry’s growth of 6.1%.
Stocks to Consider
A couple of better-ranked stocks from the finance space are Janus Henderson Group plc (JHG - Free Report) and AllianceBernstein Holding L.P. (AB - Free Report) . Currently, JHG sports a Zacks Rank #1 (Strong Buy) while AB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for JHG for the current year have been revised 5.2% upward in the past 60 days. The company’s share price has increased 18.8% over the past six months.
Estimates for AB’s current-year earnings have been revised 1% upward in the past 60 days. The company’s shares have gained 4.3% in the past six months.