Wells Fargo hit with growth ban in Yellen’s final act

Bloomberg

After markets closed on her final workday in office, Federal Reserve Chair Janet Yellen delivered a blow to one of the nation’s largest banks: Wells Fargo & Co. won’t be allowed to grow until it cleans up.
Fed officials said the San Francisco-based lender’s pattern of consumer abuses and compliance lapses called for an unprecedented sanction. Until Wells Fargo addresses shortcomings in areas including internal oversight, it can’t take any action that would boost total assets beyond their level at the end of 2017, without the Fed’s permission.
“This is akin to the last scene in ‘The Godfather,”‘ said Isaac Boltansky, an analyst at Compass Point Research & Trading. “Chair Yellen decided to handle unfinished business on her way out the door.”
It’s been a long time coming. Wells Fargo began stumbling through a spate of scandals 17 months ago, starting with revelations that branch employees opened millions of accounts without customer permission to meet aggressive sales targets. The company kept coming under fire after revealing that auto-loan clients were forced
to pay for unwanted car insurance
and that mortgage customers were improperly charged fees.

HOURS LEFT
Fed officials said they had been working on their order for a while, and that the company had just finally agreed to it. The announcement
came hours before Yellen’s term was to expire, hitting the biggest bank
in her former district. She was
president of the San Francisco Fed from 2004 to 2010.
Regulators can’t allow “pervasive and persistent misconduct at any bank,” Yellen said in a statement. She also sent a letter to Senator Elizabeth Warren, a Democrat who’s among the bank’s most prominent critics.
“The firm has much to do to earn back the trust of its customers, supervisors, investors and the public,” Yellen told the lawmaker. The growth restriction “is unique and more stringent than the penalties the Board has imposed against other bank holding companies for similar unsafe and
unsound practices.” Warren replied in a statement: “Her decision demonstrates that we have the tools to rein in Wall Street — if our regulators have the guts to use them.”

‘MORE WORK’
Wells Fargo’s assets are now capped at $1.95 trillion. Fed officials say the lender is welcome to cont-
inue taking deposits and lending to customers, but it must stay below
the limit. The firm’s compliance will be measured as an average of assets over two quarters, according to
the regulator.
The Fed set a Sept 30 deadline for the bank to outline reforms and have them reviewed by an outside firm. The asset cap can be lifted before the rest of the order is satisfied.
Even after improvements the bank made in the past 17 months, Fed officials “believe there is more work to be done, and we agree,” Chief Executive Officer Timothy Sloan told analysts on a conference call.
Sloan took charge in late 2016 and has spent much of his tenure apologizing to customers and employees, vowing to restore confidence in the bank. In a presentation, he and Chief Financial Officer John Shrewsberry kept a cool focus on numbers.